Friday, May 22, 2009

Kossan has a flat tyre

Kossan has just announced its results for 1Q2009 ended 31/3/2009. Its net profit increased marginally by 0.9% y-o-y to RM14.1 million on the back of a 1.2%-increase in turnover to RM202 million. Compared to the preceding quarter, 4Q2008, Kossan's net profit dropped by 10.9% while turnover was lower by 15.2%. The company attributed to the drop in its turnover to a reduction in selling price of gloves in tandem to reduced price of raw materials. From Table 2 below, we can see that the main reason for the drop in net profit was the poor performance of the technical rubber products division. This division produces automotive products, where the demand had dropped off due to the economic slowdown since the fourth quarter of 2008. The depressed demand continued into 1Q2009 & could well drag on for the next couple quarters of 2009.


Table 1: Kossan's 8 quarterly results


Table 2: Kossan's Segmental Analysis for FY2008 & 1Q2009

Based on the above outlook for Kossan's near-term financial performance, we may expect its EPS for FY2009 to be about 36 sen. This is based on the assumption that the recent fire in its Jeram, Selangor plant would not seriously affect its production output. With the earning outlook, Kossan (closed at RM3.60 yesterday) is now trading at a PE of 10 times its current year's earning. Compared with Topglov's current PE of 13 times (share closed at RM6.10 yesterday; FY2009e EPS of 48 sen) & Harta's current PR of 7 times (share closed at RM3.40 yesterday; FY2009e EPS of 48 sen), Kossan is no longer the cheapest rubber glove manufacturer. As such, Harta is now my preferred stock for this sector.

Kossan is still in an uptrend. Despite the poorer results, I believe Kossan's uptrend will remain intact. It has good support on the 10-week SMA line (presently at RM3.30). A break below that could send the stock to either the 30-week SMA or 50-week SMA, which are presently at RM3.00-3.10 level.


Chart: Kossan's weekly chart as at May 21, 2009 (Source: Quickcharts)

Despite the poorer performance, Kossan is still rated as a HOLD based on fairly attractive valuation (for a consumer staples stock) and positive technical outlook.
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4 comments:

  1. ACFriday, May 22, 2009 11:09:00 AM

    Thanks for the info.

    ReplyDelete
  2. hsunlFriday, May 22, 2009 3:27:00 PM

    Hi, many times I have reminded investor about Latexx. He is another Gem Glove company. But no one care about it. Why? Could you please take a closer look at this counter and write something about him. It is the 2nd best Glove maker after Harta for ME. Both of them are in The Growth Stage. Look at his improvement. Does it look good? I just want to share this with others reader. Thanks...

    ReplyDelete
  3. Alex LuMonday, May 25, 2009 10:22:00 AM

    Hi hsunl,

    You have a valid point about Latexx's recent financial performance. For example, its net profit for 1Q2009 increased to RM9.1m from RM1.1 mil achieved in 1Q2008, while turnover increased from RM48 mil to RM70 mil during the same periods. Also, one would note that its FY2008 results was significantly better than its FY2007, with net profit increasing by more than two-fold from RM4.9 mil to RM15.6 mil while turnover jumped from RM151 mil to RM223 mil.

    Latexx has attributed the significant increase in revenue in 1Q2009 to "the continuous capacity expansion and also higher prices of glove realised", while the improvement in "profit was attributed to better margin from change in product mix with sales of more premium product, improved in overall cost savings from economies of scale, decline in latex and crude oil price and favourable US dollar exchange rate".

    Prior to FY2005, Latexx was a loss-making company. Its recent performance is tabulated below:

    (RM'mil) FY'05 FY'06 FY'07 FY'08
    Turnover 128 141 151 223
    Net Profit 4.3 3.9 4.9 15.6

    If Latexx can repeat the last two quarters' performance for the remaining quarters of FY2009, then it may record a full-year EPS of about 15 sen. Based on its closing price of RM0.97 last Friday, Latexx is now trading at a PE of 6.5 times. That would make Latexx a fairly attractive rubber glove manufacturer.

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  4. hsunlTuesday, May 26, 2009 6:41:00 AM

    Thanks Alex. I think it is a bit late now for your follower to buy. She jumped too high now already. I need to sell her after reaches 1.20 and 1.40. Will get her back after the consolidate a level where PE below 6.00. Thanks again. BTW, I like the expansion plan, June 2009 from 4 billion to 5.2 billion and Dec 2009 5.2 billion to 6 billion. Lastly 7.5 billion by 2010 and 9 billion by 2011. Does she look great? She is deemed in Growth Stage counter like Harta!

    ReplyDelete