Journey to Wealth
Kossan Rubber Ind - MARKET PERFORM - 25 May
Period 1QFY12/3MFY12
Actual vs. Expectations
Below our estimate and the consensus expectation.
The 1QFY12 net profit made up only 17% and 19% of ours and the consensus' forecasts of RM129.4m and RM114.5m respectively.
Dividends No dividend was declared.
Key Result Highlights
QoQ, the earnings were down by 8% despite sales improving by 3% as the EBITDA margin dropped slightly from 15% to 14%, mainly due to the higher average latex cost, which increased by 3% QoQ to RM7.50/kg.
Apart from this, the technical rubber products division also recorded lower margins from 12.8% to 10.2% due to the higher cost of raw materials.
YoY, the turnover increased by 13%. However, the net profit margin fell by 4% due mainly to a higher raw material cost as well as a higher tax expense.
We expect lower margins in the coming quarter due to more supplies of nitrile gloves coming up and the timing difference from the depreciation of USD.
Outlook Maintain Neutral. Higher competition from the glove segment may erode Kossan's margins. However, as most players are expecting a lower latex price, this should limit the negative impact on its margins above.
Change to Forecasts
We have cut our earnings forecasts for FY12 and FY13 by 7.8-8.0% as we tweaked our nitrile latex price assumption.
Rating DOWNGRADE TO MARKET PERFORM
We are downgrading our OUTPERFORM call to MARKET PERFORM as the current share price only implies a 7% upside for the stock as measured against our new TP of RM3.36.
Valuation We have reduced our target price from RM3.64 to RM3.36 based on an unchanged FY12E PER of 9.0x, in line with our (downward) earnings revision.
Risks Higher latex price ahead.
Source: Kenanga
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