Kossan: Earnings Rebounded

Result Update

For QE30/9/2018, Kossan's net profit rose 21% q-o-q or 19% to RM54 million while revenue rose 16% q-o-q or 17% y-o-y to RM574 million. The improved performance was mainly attributable to the improved performance in the Gloves division.

The Gloves division’s revenue rose 16.98% to RM506 million, while PBT surged 36% to RM63 million. The improved performance was mainly attributable to the continued strong demand for the Group’s glove products with higher volume sold (+7.71%) arising from the new capacity coming onstream as well as existing plants running at full capacity, improved average selling prices (+1.8%), increased manufacturing and production efficiency and effective cost controls.

The TRPs division’s revenue rose 4% to RM46 million, while PBT decreased to RM7 million compared with RM8 million in the immediate preceding quarter. The lower performance was mainly attributable to the sales mix of lower margin products in the current quarter as compared with QE30/6/2018.


Table: Kossan's last 8 quarterly results

Graph: Kossan's last 49 quarterly results

Financial Position

Kossan's financial position as at 30/9/2018 is deemed healthy with current ratio at 1.9 times while gearing ratio was at 0.6 time.

Valuation

Kossan (closed at RM4.30 last friday) is now trading at a PE of 29.3 times (based on last 4 quarters' EPS of 14.7 sen). At this PER, Kossan is deemed fully valued.

Technical Outlook

Kossan's gradual uptrend is capped by the horizontal line at RM4.40.


Chart: Kossan's weekly chart as at Nov 16, 2018 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and financial position, Kossan is a good stock for long-term investment. However, its valuation is fairly demanding and there is little room for upside gain in the short to medium-term. Due to recovery in earning, Kossan's rating is now revised from SELL to HOLD.

Note: 

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.