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Tuesday, February 19, 2019

Kossan Rubber Industries Berhad - 4QFY18 Within Expectations

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Kossan’s reported a full year net profit of RM200.8m in FY18, which came in within ours and consensus’ estimates, at 99 % and 98% respectively. In FY18, Kossan also recorded the highest ever revenue, surpassing the RM2bn mark (full year revenue at RM2.14bn,+9.5% YoY). The better performance was mainly due to higher sales volume and ASP for the glove segment. Going forward, we expect the Group’s growth to be supported volume growth from Plant 18 & Plant 19 and the expansion in Bidor (45.0bn pcs pa). We maintain our Neutral call, with an unchanged TP of RM4.34, which is based on 24x CY19F EPS (+0.5SD above its 5-year historical forward mean).
  • Gloves. Kossan’s gloves division reported a higher revenue of RM519.4m (+25.4% YoY, +2.7% QoQ), while PBT stood at RM62.5m (+16.7% YoY, - 0.9% QoQ). The better performance was mainly due to stronger demand growth for gloves, with higher ASP (+6.1% YoY) coupled with greater volume sold (+9.7% YoY). We believe the extra capacity from Plant 17, which was fully commissioned in November 2018, also contributed to the growth. Better result was achieved despite higher natural gas cost (+22.8% YoY), higher nitrile prices (+9.3% YoY) as well as less favourable forex translation rate (-6.2%).
  • Technical Rubber Products (TRP). TRP segment recorded improved performance, revenue rose to RM50.4m (+19.42 YoY, +9.23% QoQ), while PBT increased to RM8.5m (+91.3% YoY, +22.9% QoQ). Increased sales deliveries and sales of higher margin products was the main contributor to TRP’s positive performance.
  • Outlook. Fully commission of Plant 17 (1.5bn pcs p.a) in November 2018 has brought the group’s total installed capacity to 26.5bn pcs p.a. Capacity from Plant 17 has been fully sold out, supporting the growth for 1QFY19. Construction works for both Plant 18 (2.5bn pcs p.a.) and Plant 19 (3bn pcs p.a.) are on track, with full commissioning expected to be in 2QCY19 and 4QCY19 respectively. Additional capacity from these two plants should support the Group’s growth in FY19. Moving forward, all eyes will be on Kossan’s expansion in Bidor, where it will have an additional installed capacity of 45bn pcs p.a. upon full commission of all 12 plants. The Bidor expansion is currently at the planning stage and is expected to take 8 years to complete.
Source: PublicInvest Research - 19 Feb 2019

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