Period 1QFY12/3MFY12
Actual vs.
Expectations
Below our
estimate and the consensus expectation.
The 1QFY12
net profit made up only 17% and 19% of ours and the consensus’ forecasts of RM129.4m
and RM114.5m respectively.
Dividends No
dividend was declared.
Key Result Highlights
QoQ, the
earnings were down by 8% despite sales improving by 3% as the EBITDA margin dropped
slightly from 15% to 14%, mainly due to the higher average latex cost, which
increased by 3% QoQ to RM7.50/kg.
Apart from
this, the technical rubber products division also recorded lower margins from
12.8% to 10.2% due to the higher cost of raw materials.
YoY, the
turnover increased by 13%. However, the net profit margin fell by 4% due mainly
to a higher raw material cost as well as a higher tax expense.
We expect
lower margins in the coming quarter due to more supplies of nitrile gloves
coming up and the timing difference from the depreciation of USD.
Outlook Maintain
Neutral. Higher competition from the glove segment may erode Kossan’s margins. However,
as most players are expecting a lower latex price, this should limit the negative impact on its margins
above.
Change to Forecasts
We have cut
our earnings forecasts for FY12 and FY13 by 7.8-8.0% as we tweaked our nitrile
latex price assumption.
Rating
DOWNGRADE TO MARKET PERFORM
We are
downgrading our OUTPERFORM call to MARKET PERFORM as the current share price only
implies a 7% upside for the stock as measured against our new TP of RM3.36.
Valuation We
have reduced our target price from RM3.64 to RM3.36 based on an unchanged FY12E
PER of 9.0x, in line with our (downward)
earnings revision.
Risks Higher
latex price ahead.
Source: Kenanga
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