Friday, May 22, 2015

Kossan: Earnings continued to rise

Result Update

For QE31/3/2014, Kossan's net profit increased 20% q-o-q or 23% y-o-y to RM45 million while revenue increased 2% q-o-q or 21% y-o-y to RM369 million. Bottom-line increased due to higher pre-tax profit contribution from the Gloves division, which had more than offset the decline in pre-tax profit contribution from the Technical Rubber division.

The Gloves division saw higher revenue due to higher volume sold (increase of 4.5%) & higher selling prices (increase of 2.5%). Higher  sales,  better product mix and improved production efficiency led to a  28.1%-increase in profit before taxation.

The Technical Rubber Products division saw lower Revenue and PBT due to softer demand as a result of weak world economy & local market uncertainty (caused by GST implementation) plus completion of projects to supply infrastructure projects.

Finally, Kossan's Clean-room division managed to record improved pre-tax profits of 24.8% (to RM0.88 million) despite a marginal 7.2%-decline  in  revenue.


Table: Kossan's last 8 quarterly results

Kossan's top-line & bottom-line continued their steady growth. Due to its efficient production process, the profit margin is also on the upward trend.


Chart 1: Kossan's last 35 quarterly results

Valuation

Kossan (closed at RM6.20 yesterday) is now trading at a PE of 26 times (based on last 4 quarters' EPS of 23.8 sen). At this PE multiple, Kossan is deemed fully valued.

Technical Outlook

Kossan is in a long-term uptrend, with share prices moving higher within a channel. The strong momentum could send the share prices to test the upper line.


Chart 2: Kossan's weekly chart as at May 21, 2015 (Source: ShareInvestor.com)

Conclusion

Based on improved financial performance & positive technical outlook, Kossan is a good stock for long-term investment. However, its demanding valuation could cap its upside potential.

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:

lai said...

Hi ALex,

SK Press looking good at the moment.

What do you think?

Thnaks

Alex Lu said...

Hi lai,

SKPRes broke above its rising upper line at RM0.93 in early May. It coincided with its warrant (SKPRes-WA) breaking above its triangle at RM0.36.

The target price for this breakout move is:
1) SKPRes: RM1.10-1.15
2) SKPRes-WA: RM0.50-0.55