Kossan: Earnings Continued to Grow

Result Update

For QE31/12/2018, Kossan's net profit rose 10% q-o-q or 28% to RM60 million while revenue rose 3% q-o-q or 23% y-o-y to RM589 million. Group revenues due to higher revenue achieved by the Gloves and TRP divisions while higher profits came from the TRP division.

The Gloves division recorded a 2.69%-increase in revenue to RM519.36 million while PBT eased dropped 0.9% to RM62.50 million. The 4Q18 performance was achieved on the back of higher depreciation charges and start-up costs from the recently completed plants, while meaningful contributions from the latest Plant 17 (fully commissioned in November 2018) are only expected in the coming quarter. The demand for glove products continues to be strong with higher volume sold (+2.5%) in 4Q18 as compared with the immediate preceding quarter, with all plants operating at full capacity. In the current quarter under review, average selling prices were lower (-1.9%), in tandem with the decrease in nitrile (-9.50%) and natural rubber (-5.88%) prices as compared with 3Q18.

The TRPs division recorded a 9.23%-increase in revenue to RM50.38 million while PBT increased 22.90% to RM8.46 million. The better performance was mainly attributable to higher sales deliveries and sales of higher margin products.

The Cleanroom division recorded revenue and PBT of RM18.83 million and RM1.10 million respectively in 4Q18, as compared with from RM21.03 million and RM0.92 million in 3Q18.


Table: Kossan's last 8 quarterly results

Graph: Kossan's last 50 quarterly results

Financial Position

Kossan's financial position as at 31/12/2018 is deemed healthy with current ratio at 2.0 times while gearing ratio was at 0.6 time.

Valuation

Kossan (closed at RM4.05 in the morning session) is now trading at a PE of 25.7 times (based on last 4 quarters' EPS of 15.76 sen). At this PER, Kossan is deemed fully valued.

Technical Outlook

Kossan is in a gradual uptrend, with support at the 200-week SMA line.


Chart: Kossan's weekly chart as at Feb 19, 2019_12.30 (Source: Malaysiastock.biz)

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 the room for upside gain in the short to medium-term may be limited. I maintain my rate for Kossan as a 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.