RHB Equity 360° - 17 May 2010 (Kossan, CIMB, AMMB, IOI, ILB, Wellcall; Technical: Sime, Pos)

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♦ Kossan is due to announce its 1QFY10 results later this week. We expect Kossan to post low double-digit yoy revenue and net profit growth due to a combination of: 1) higher volume sales for the glove segment; 2) improved demand for its TRP products as a result from the economic recovery; and 3) margin expansion due to the improvement in sales mix as more higher value gloves were sold during the quarter.
♦ Qoq, we expect high single digit revenue growth to be achieved mainly on the back of:
1) upward adjustments to selling prices to pass on higher raw material cost, offset by the weakening of US$ against RM; and
2) stronger demand for TRP segment due to economic recovery. 1Q10 core earnings, however, could possibly remain flat qoq due to lower margins resulting from the usual time lag in passing on higher raw material prices and weakening US$, partly offset by stronger performance from TRP segment.
♦ Capacity expansion at its new factory in Jalan Meru is ongoing, and upon completion, this new factory will house a total of 32 double former lines. This factory currently houses 8 double-former lines, which started commercial production in Oct’09 while another 8 double-former lines are expected to start commercial production in 3Q2010. The remaining 16 double-former lines are expected to start commercial production
by 2Q2011. In total, Kossan’s annual production capacity would increase from 12bn pieces currently to 14.5bn pieces by end-2010 and 18 bn pieces by end-2011.
♦ Maintain forecasts, fair value of RM10.74 (based on target CY10 PER of 13x) and Outperform call.

RHB Equity 360° - 17 May 2010 (Kossan, CIMB, AMMB, IOI, ILB, Wellcall; Technical: Sime, Pos)