Thursday, August 25, 2011

CIMB Research downgrades Kossan to Neutral

KUALA LUMPUR: CIMB Equities Research is downgrading KOSSAN RUBBER INDUSTRIES BHD [] from Outperform to Neutral.

The research house said on Thursday, Aug 25 that while valuations are cheap, this is balanced by overcapacity and higher energy costs.

'Although Kossan has been our top pick since Apr 2011, the stock has underperformed the sector. Hartalega is now our top pick,' it said.

CIMB Research said the 1H FY11 results were disappointing, making up only of 39% of its forecast and 37% of consensus estimates. As expected, no dividends were declared.

'We believe the poor results were due to volatile input costs and overcapacity in the sector. We are cutting our FY11-13 EPS forecasts by 15-16% as our utilisation assumptions were too optimistic.

'Our target price falls from RM3.87 to RM3.25, still based on a forward P/E of 9.1 times or a 30% discount to Top Glove's 13.1 times benchmark P/E,' it said.

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