Kossan has just announced results for its 2Q2009 ended 30/6/2009. Its net profit declined by 3.8% q-o-q or 3.0% y-o-y to RM13.6 million while turnover dropped by 2.8% q-o-q or 9.4% y-o-y to RM197 million.
The lower turnover was due to reduction in selling price of gloves as a result of lower price of raw materials. Pre-tax profits in the current and preceding quarters include foreign exchange losses amounting to RM 12.51 million and RM 12.21 million respectively.
Table 1: Kossan's 8 quarterly results
Chart 1: Kossan's 12 quarterly results
I have posted earlier about the impact of forex losses on Kossan's results for FY2009. The forex losses is the result of Kossan's hedging its receivables at an average contract of RM3.37 to the US dollar in anticipation of further weaknesses in the US currency. Instead, the US dollar has rebounded from April 2008 to April 2009. Since then, it has eased off to 3.50-3.60. I expect this trading range to be intact for the next 2-3 months. See Chart 2 below.
Chart 2: USD/RM exchange rate as at August 20, 2009 (Source: Yahoo Finance)
As such, Kossan's 2nd half-year results will likely to record smaller forex losses. We will then see an improvement in its EPS from 8.4 sen for 2Q2009 to about 10-12 sen for 3Q2009 & 4Q2009. Kossan's FY2009 EPS may come at about 40 sen. As such, Kossan (closed at RM3.86) is now trading at a current PE of 9.7 times. I think Kossan may trade up to 12 times earning; thus giving the stock a potential upside is about 20%.
From Chart 3 below, we can see that Kossan is trending higher in an upward channel, with support at RM3.50 & resistance at RM4.40.
Chart 3: Kossan's weekly chart as at Aug 20, 2009 (Source: Quickcharts)
Based on the expectation of a better results for 2nd half-year; still attractive valuation; and positive technical outlook, Kossan remained a good stock for long-term investing.
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