FIGURE 1: KOSSAN RUBBER
INDUSTRIES BERHAD LAST 5 YEARS SHARE PRICE TREND
**analysis
based on 2019 annual report.
1.
GENERAL
INTRO: Kossan Rubber Industries Bhd manufactures industrial rubber products
and disposable latex gloves. The majority of Kossan Rubber’s revenue is
generated through exports outside of Malaysia.
2.
NOTABLE
POINTS:
a. Established
in 1979, KOSSAN is today one of the largest manufacturers of natural rubber and
nitrile gloves in the world. KOSSAN's glove products are mainly exported to the
developed markets of the US, Eurozone, and Asia Pacific. Its current installed
capacity stands at 29 billion pieces per annum, whereby the nitrile to natural
rubber (NBR:NR) volume split is 79:21 for FY2019.
b. KOSSAN’s
business segments are divided into Technical Rubber Products (“TRPs”), Gloves
and Cleanroom Products. It has a total of twenty-two (22) plants: seventeen
(17) for the production of gloves, four (4) for TRPs and one (1) for cleanroom
products. With the exception of the plant for cleanroom products which is
located in Dongguan, China, all its plants are located in Malaysia. Majority of
revenue is contributed by gloves sales (88.51%), followed by technical rubber
products (8.15%) and cleanroom products (3.34%).
c. In
FY2019 the Group delivered a double-digit growth in profit before taxation.
With this performance, the Group has delivered a record 24 years of unbroken
profits since its listing. Revenue increased to RM2.22 billion as compared with
RM2.14 billion in 2018. Profit before tax increased to RM276.4 million as
compared with RM249.3 million in the previous year mainly attributable to the
improved performance in the Gloves division. In FY2019, despite operating under
higher raw material, energy and labour costs, PBT margins expanded to 12.5%
from 11.6% as a result of efficiency gains and effective cost controls.
d. Its
newest manufacturing plant incorporates high-speed lines with a high-degree of
automation to reduce the dependence on manual labour. Also, implementation of a
new Resource Planning system will integrate and centralise administrative
functions and increase management efficiency and control.
3.
IS
THIS COUNTER A STRONG GROWTH STOCK?
a. REVENUE
RANGE (RM million): 2217.1 million as reported in 2019 annual report, this is a
high revenue company.
b. SHARE
PRICE: from 2016-2021, share price surged from around RM4.20 to a peak of more
than RM19.00 at the start of the COVID-19 pandemic and then subsequently
dropped back to current level of around RM4.00.
c. EARNING
PER SHARE (EPS): earning per share in last 5 years was overall steady, which
ranged from 13.69 to 17.57 sen, except for FY2021, the increased gloves demand
brought about by the COVID-19 pandemic enabled KOSSAN to realise an earning per
share of up to 47.36 sen.
d. PRICE
TO EARNINGS (P/E) RATIO: current P/E ratio is at 17.11, which is reasonable in
view of the counter’s future earning potential.
e. FUTURE
POTENTIAL/PROSPECTS: share price expect to be stable in the next few years
f.
CAPITAL EXPENDITURE (CAPEX): spending on
purchase of new fixed assets and other investments amount to about RM 207.7
million, which is around 8% of total assets.
4.
IS
THIS A STRONG DIVIDEND STOCK?
a. DIVIDEND
YIELD: in 2019 financial year, KOSSAN declared a dividend payout of 6 sen per
share to shareholders, which amounts to a dividend yield of 1.48%.
b. DIVIDEND
PAYOUT RATIO: The FY2019 dividend amounts to about 34% of its total earnings. In
the last five years, KOSSAN’s dividend payout ratio ranged from 34 to 42% of
its total earnings.
c. CONSISTENCY:
This counter’s dividend payout has been very consistent, the dividend paid to
shareholders in the last five years ranged from 5.5 to 6 sen.
5.
IS
THE MANAGEMENT PERFORMANCE GOOD?
a. RETURN
ON EQUITY (ROE): in 2019 financial year, KOSSAN reported a good return of
shareholders’ equity, at 15.7%. In the last five years, its ROE remain
consistent, ranging from 15.1 to 21.3%.
b. COST-TO-INCOME
RATIO: the cost-to-income ratio is 702%, which is relatively low compared to
other manufacturers in the same category.
c. DEBT-TO-EQUITY
(GEARING) RATIO: Its gearing ratio is at 64%, whereby its debt level is less
than its equity.
6.
OTHER
INDICATORS:
a. CASH
FLOW: cash flow is positive, at around RM 162.2 million, equivalent to RM 0.12 per
share.
b.
SUPPORT BY INSTITUTIONAL INVESTORS: this counter
is well supported by institutional investors, there are 22 institutional
investors at top 30 major shareholders list, including EPF (5.34%), KUMPULAN
WANG PERSARAAN (2.39%), LEMBAGA TABUNG HAJI (0.89%) as well as investment funds
and insurance funds. Its major shareholder is Kossan Holdings (M) Sdn Bhd
(49.59%).
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