KOSSAN Rubber: Buy, target price RM5.10

MAYBANK Investment Bank Research maintained its recommendation and target price for Kossan Rubber, as it expects the rubber glovemaker's second quarter results to be in-line with expectations.

"We think the second quarter results are likely to meet our expectations at around RM29 million net profit," said the research house in its report this week.

The research house expects Kossan's half year net profit to be about RM59 million, or 46 per cent of its full-year forecast.

Kossan has been expanding its synthetic capacity lately, which is a smart move.
"In our view, Kossan's capacity expansion, skewed towards nitrile, is timely as it will benefit from the demand switch from latex-based gloves to nitrile. Management aims to increase its nitrile sales volume to 50 per cent of total by 2011 (from 35 per cent in 2009).

"Nevertheless, we caution that nitrile producers tend to face margin pressure as new capacities and players (i.e. Adventa, YTY) join in the fray. We have factored in this concern, on declining EBIT (earnings before interest and tax) margin trend," it said.