Kossan’s  FY13 core earnings of MYR140.6m  were  in line with our but above  consensus  estimates.  This  was  mainly  attributed  to  a  higher sales  volume,  underpinned by  capacity  expansion and stabilising  raw material prices. We continue to like  Kossan’s  robust earnings outlook over the next two years,  as well as  its balanced product mix. Maintain BUY, with our FV revised higher to MYR5.10 (from MYR4.52).

• Sturdy FY13 numbers.  Kossan’s  FY13 revenue of MYR1,309.8m  grew 6.1%  y-o-y,  mainly  attributed  to  higher  sales  volume  on  the  back  of increased  production  capacity.  Meanwhile,  its  FY13  core  earnings  of MYR140.6m  surged 37.7%  y-o-y  owing  to  lower  raw material prices  as well as better operating efficiencies. The company’s FY13 core earnings were in line with our estimate but above consensus expectations, making up 97% and 103% of the respective forecasts.
• Operating  numbers  improve  y-o-y.  On  a  sequential  basis,  the company’s  4QFY13  revenue  of  MYR327.4m  was  up  2.8%  y-o-y  but 1.8% lower q-o-q due to lower average selling prices (ASPs) on the back of  lower  material  prices.  Correspondingly,  the  net  profit  of  MYR38.6m was  29.8%  higher  y-o-y  and  8.6%  q-o-q,  thanks  to  better  operating efficiencies  at Kossan’s  plants and a balanced product mix  with higher nitrile  glove  sales.  Meanwhile,  its  technical  rubber  products  (TRP)segment chalked up positive sales and PBT growth of 13.9% and 20.3% y-o-y respectively due to increased sales volume and lower raw material prices. Sales and PBT at its cleanroom division also  rose, soaring 74.8% and >100% y-o-y due to better operating efficiency.
• Maintain  BUY.  We make no major changes to our assumptions at this juncture. We maintain our BUY call, with our FV bumped up to MYR5.10 (from MYR4.52) as we peg the stock at a higher P/E of 18x (from 16x) on  FY14  earnings.  We  believe  the  higher  P/E,  which  is  at  a  slight discount  to  nitrile  market  leader  Hartalega’s  19x  P/E  (HART  MK, NEUTRAL, FV:  7.40)  is justified  given  Kossan’s: i)  robust  29%  earnings growth  for  FY14  underpinned by its capacity expansion, ii)  balanced mix of 53% nitrile and 47% natural rubber (NR)  products, which enables it to tap into both market segments,  and iii) a steady operating environment, with stable raw material prices and a favourable USD. 

Financial Exhibits

SWOT Analysis

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

Recommendation Chart

Source: RHB