Tuesday, May 28, 2013
Kossan- top-line & bottom-line increased
For QE31/3/2013, Kossan's net profit increased 12% q-o-q or 51% y-o-y to RM33 million while revenue increased 2% q-o-q or 13% y-o-y to RM327 million. Bottom-line increased q-o-q due to higher pre-tax profit contribution from the Gloves division (from RM33 million to RM40 million) which more than offset the drop in pre-tax profit contribution from the Technical Rubber Products division (from RM7 million to RM4 million). This improved performance for the Gloves division is partly contributed by the increased output capacity utilization achieved from its research and development on machines optimization and also slight decrease in the price of raw materials.
Table: Kossan's last 8 quarterly results
Kossan's steady improvement in top-line & bottom-line is indeed very encouraging. It as managed to bring its pre-tax profit margin back up to the high of 14% that was enjoyed in FY2010. This is a testimonial to its efficient production process.
Chart 1: Kossan's last 27 quarterly results
Kossan (closed at RM4.06 yesterday) is now trading at a PE of 11.3 times (based on last 4 quarters' EPS of 36 sen). I believe Kossan should trade at the same PE multiple of 17 times enjoyed by the top two rubber gloves producers (Harta & Topglov). Thus, I believe Kossan may see an upside of 40-50% over the next 12 months due to PE expansion.
Kossan is in an uptrend line with support at RM3.30. It has just broken above its horizontal resisatnce at RM4.00. With this breakout, Kossan's uptrend may accelerate.
Chart 2: Kossan's weekly chart as at Mar 28, 2013_9.30am (Source: Quickcharts)
Based on improved financial performance, attractive valuation & positive technical outlook, Kossan is a good stock for long-term investment. It would now be my top pick for the rubber glove sector.
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.