Kossan: Earnings Soared But Share Price Floored

Result Update

For QE30/9/2020 (3Q20), Kossan's net profit rose 166% q-o-q or 6-fold y-o-y to RM349 million while revenue rose 47% q-o-q or 95% y-o-y to RM1.033 billion.

The improved performance was attributable to the improvement in all its three divisions – Gloves, Technical Rubber Products and Cleanroom. The improvement in the Gloves and the Cleanroom divisions were especially significant. To wit:

The Gloves division’s revenue increased 103.24% to RM946.57 million in 3Q20 from RM465.75 million in 3Q19, with PBT rising 670.80% to RM416.65 million in the current quarter as compared with RM54.06 million from a year ago. The improved performance was mainly attributable to the higher volume sold (+34.9%) and higher average selling price as compared with 3Q19.

The Cleanroom division grew revenue and PBT by 118.82% and 1131.80% respectively to RM40.25 million and RM10.19 million in 3Q20, as compared with RM18.40 million and RM0.83 million in 3Q19. The improved performance was mainly attributable to the increase in the demand for the division’s products as a result of the COVID-19 pandemic.

Table: Kossan's last 8 quarterly results

Graph: Kossan's last 56 quarterly results

Financial Position

Kossan's financial position as at 30/9/2020 is deemed healthy with current ratio at 1.7 times while gearing ratio was at 0.6 time.

Valuation

Kossan (closed at RM6.58 yesterday) is now trading at a trailing PE of 13.9 times (based on last 4 quarters' EPS of 47.36 sen). At this PER, Kossan is deemed fairly attractive. In fact, this PE is lower than the PE multiple assigned by the market in 2019. This shows that investors have begun to discount the impact of the vaccine on the future sales of Kossan as well as other glove makers. If the arrival of the vaccines are delayed or the logistics are too daunting, then there is a likelihood that the strong demand for gloves will persist for a while.

Technical Outlook

Kossan is in a long-term uptrend line, SS with support at RM7.00 yesterday. The breakdown of the uptrend line may lead to further decline unless a quick rebound takes place. In September, Kossan broke its uptrend line, SS but it rebounded the next day. We will have to wait and see how Kossan to fare today.


Chart: Kossan's monthly chart as at November 10, 2020 (Source: Malaysiastock.biz)

Conclusion

Despite the developing negative technical outlook, Kossan is a good stock for long-term investment based on good financial performance and financial position and fairly attractive valuation.

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.