Friday, November 23, 2012

Kossan- cheaper than Topglov & Harta

Result Update

For QE30/9/2012, Kossan's net profit increased b y 24% q-o-q & 24% y-o-y to RM29 million while revenue improved by 6% q-o-q or 16% y-o-y to RM323 million. Profit improved due to lower raw material cost as well as higher capacity utilization.


Table 1: Kossans last 8 quarterly results

Kossan has just commenced trial production of clean-room gloves. This resulted in a small loss which were the development cost of the gloves. I personally prefer Kossan's diversification exercise [into other rubber downstream industries] to Topglov's diversification exercise [of going into rubber plantation]. I feel that plantation business involved a different kind of skills which the management of Topglov may find difficult to acquire.


Table 2: Kossan's segmental performance for 9-month ended 30/9/2012


Chart 1: Kossan's last 25 quarterly results

Valuation

Kossan (closed at RM3.19 yesterday) is now trading at a PE of 10.3 times (based on last 4 quarters' EPS of 30.86 sen). At this PE multiple, Kossan is cheaper than Topglov & Harta which are trading at PE of 17 times each. (Note: Topglov, which closed at RM5.48, has a EPS of 33 sen for the past 4 quarters. Harta, which closed at RM4.87, has a EPS of 29 sen for the past 4 quarters.)

Technical Outlook

Kossan has been trading in a range between RM2.80 & RM3.30 for the past two years (except for a short spell in Jan-Feb 2012 & Aug-Oct 2011). Prior to this, Kossan appears to be in a long-term uptrend. Will it recommence its uptrend again?


Chart 2: Kossan's weekly chart as at Nov 22, 2012 (Source: Tradesignum)

Conclusion

Based on improved financial performance and attractive valuation, Kossan is rated a good stock for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kossan.

2 comments:

Unknown said...

Hi Alex, ruberex even cheaper than Kosan, Harta, and Topglove as well.

Alex Lu said...

Hi Unknown

Ruberex may be cheaper with PE at 7.5 times. However, Ruberex is a small player, with turnover 20-30% of Kossan. Its rubber glove operation is a small albeit growing portion of its overall business. The company is more well-known for its industrial & household gloves.