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Tuesday, April 17, 2018

HLIB Research flags plant delay for Kossan, lowers earnings forecast by 9-13%

Tan Xue Ying /
April 17, 2018 11:05 am +08

KUALA LUMPUR (April 17): Hong Leong Investment Bank (HLIB) Research has lowered its earnings forecast and target price for Kossan Rubber Industries Bhd, and raised concerns over the longer time horizon needed for Kossan's new plants to come online.

In a company update this morning, HLIB cited the management guiding that the commissioning was delayed at Kossan's completed Plant 16, which is located along Jalan Meru, Klang.

Plant 16 has a total of eight lines, and three billion in additional installed capacity for low derma gloves.

Despite Kossan seeing a 15% year-on-year rise in low derma glove sales and expects this to grow from the ramp-up in Plant 16 moving forward, HLIB lowered its earnings forecast for financial years ending Dec 31, 2018 to 2020 by 9-13%.

It said the revision was to account for a more conservative onset of capacity from Plant 16, and also expected delays from the completion of Plants 17 and 18, also located along Jalan Meru.

"While Plant 16 is completed, commissioning was delayed due to teething issues, resulting to Kossan missing on the sector upcycle last year.

"In FY18, we can expect a staggered ramp-up in the eight lines from Plant 16 as we expect Kossan to ramp up the capacity 'conservatively'.

"On the back of this revelation, we are more cautious on the group's completion schedule for plant 17 and 18 (4.5 billion pieces per annum)," wrote HLIB analyst Sheikh Abdullah.

HLIB said the management guided earlier for a second quarter (Plant 17) and fourth quarter (Plant 18) commercial production this year, but has now been delayed to commence production after completion due year-end.

Post forecast adjustments, the investment bank lowered its target price on Kossan to RM7.80, from RM8.90 previously, while reiterating its "hold" call on the stock.

At 10.15am, shares in Kossan rose seven sen or 0.91% to RM7.75 in thin trade, translating into a market capitalisation of RM4.96 billion.

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