Kossan (KRI)’s 9MFY13 core earnings of MYR102.1m came in within our and  consensus  expectations,  reaching  70.7%  and  75.0%  of  the respective  FY13  forecasts,  boosted  by  increased  sales  volume  and improved  production efficiency.  All in, we maintain our BUY call on the stock, with our ex-bonus FV adjusted lower to MYR3.78 (from MYR7.53), pegged to an unchanged 14x FY14 EPS.

• 9MFY13 numbers in line. Kossan (KRI)’s 9MFY13 earnings were in line with our and consensus expectations, representing  70.7% and 75.0% of the respective full-year forecasts. 9MFY13 revenue  grew 7.1% y-o-y  to MYR982.4m, thanks to increased sales volume  and stable raw material prices (natural latex and nitrile). Correspondingly,  9MFY13  net profit  of surged  36.5%  y-o-y  to  MYR102.1m,  on  the  back  of  better  production efficiency due to increased automation in its production lines.
• Operating  divisions  improve.  KRI’s  3QFY13  revenue  and  earnings rose  3.7% and 6.0%  q-o-q  to MYR333.5m and MYR35.4m respectively, mainly  boosted  by  its  technical  rubber  products  (TRP)  division,  whose revenue and PBT surged by 19.5% and 63.9% respectively due  to lower material  costs  and  better  production  efficiency.  Meanwhile,  its  clean room division’s  earnings increased >100% q-o-q  following  KRI’s efforts to  penetrate  into  new  markets  especially  China.  However,  its  gloves division saw  a slight decrease in revenue (-1.65% q-o-q),  while  earnings remained  flat  q-o-q  due  to  lower  average  selling  prices  (ASPs)  on  the back of lower raw material prices.
• Maintain  BUY.  We  make  no  major  changes  to  our  assumptions.
• Maintain  BUY,  with  our  ex-bonus  FV  adjusted  to  MYR3.78  (from MYR7.53),  pegged  to  an  unchanged  14.0x  FY14  P/E.  We  remain positive  on  the  stock  as  we  believe  that  KRI’s  valuations  are  still attractive  given  that  it  is  trading  at  a  12.1x  FY14F  P/E,  which  is  at discounts  of 22.0% and 40.4% to market leaders  Top Glove’s  15.5x  and Hartalega’s  20.3x  respectively.  Note  that  the  stock  traded  ex-bonus (one-for-one)  on  6  Nov.  With  the  exercise  completed  on  8  Nov,  this doubled KRI’s outstanding share base to 639.5m (from 319.7m).

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SWOT Analysis

Company Profile
Kossan Rubber Industries’ principal activities are in the manufacture of examination rubber gloves and technical rubber products.

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Source: RHB