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.