Friday, May 20, 2011

Kossan dips in early trade

KUALA LUMPUR: KOSSAN RUBBER INDUSTRIES BHD [] shares declined in early trade on Friday, May 20 after its net profit for the first quarter ended March 31, 2011 fell 24.4% to RM22.96 million from RM30.38 million a year earlier partly due to buyers holding lower stock levels due to the increase in raw material, as well as higher latex cost.

At 9.15am, Kossan lost eight sen to RM3.15 with 2,000 shares traded.

Revenue for the quarter declined to RM256.45 million from RM262.77 million in 2010. Earnings per share was 7.18 sen.

CIMB Equities Research has reduced its target price for Kossan from RM5.14 to RM4.59.

It said on Friday, May 20 that Kossan's 1Q11 annualised net profit was a letdown due to weak demand and high costs as it came in at 70% of its and consensus estimates.

'We cut our FY11-13 EPS forecasts by 5-12% after scaling back FY11 capacity by 10% to 12.5bn pieces and lowering our cost pass-through assumption. This reduces our target from RM5.14 to RM4.59, still based on 10.15x forward P/E or a 30% discount to our target market P/E. Kossan's 7x forward P/E is undemanding considering its 13% 3-year EPS CAGR.

'We continue to rate it a BUY and our top pick. Demand should recover given the steady decline in natural rubber prices, which is encouraging customers to restock. The stock may be catalysed by 1) new contracts, 2) Cleanera acquisition and 3) higher nitrile sales,' it said.


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