Kossan to benefit from Indonesian venture

0

KUCHING: Kossan Rubber Industries Bhd (Kossan) is set to see potential benefits from its division in Indonesia via venturing upstream into rubber plantations or the expansion of its technical rubber products (TRP).

To note, Kossan recently announced it had incorporated a new subsidiary, PT Kossan Setia Jaya, on January 30, 2013 under the laws of the Republic of Indonesia with an issued and paid-up capital of 1,200 shares of US$1000 each with a total nominal value of 11,610 million or RM3.7 million.

Kossan Labuan Bhd and Kossan currently hold 99 per cent and one per cent respectively in the issued and paid-up capital of PT Kossan Setia Jaya.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined in a research report yesterday, “We believe that this latest announcement by Kossan could potentially see it either venturing upstream into rubber plantations or expanding its TRP division in Indonesia.”

The research firm outlined that it would be neutral on its rubber plantation venture if Kossan did so.

It added, “Although rubber plantations will help ensure the consistent supply of latex as well as a hedge against the volatility of rubber prices, however, investment into rubber plantations especially greenfields will likely yield zero or minimal returns in the early years since the gestation period for rubber trees is six years.”

Nevertheless, the research firm highlighted that it viewed the potential investment in expanding the TRP division as a positive move for Kossan as the TRP division was currently growing rapidly by more than 20 per cent, quarter-on-quarter at the pre-tax profit level over the past two quarters.

“For the first nine months of the financial year 2012 (9MFY12), the TRP division’s pre-tax rose more than 60 per cent year-on-year and accounted for 13 per cent of the total group’s pre-tax profit,” it explained

Looking ahead, the research firm noted, the commercial operation of Kossan’s new production lines was expected to contribute to the earnings growth in 2013.

“We understand that the nine-line production plant, which is set to produce 1.3 billion nitrile gloves per annum is now commercially ready.

“The production line to produce another 0.6 billion pieces of surgical gloves is expected to be ready by end-February 2013,” MIDF Research said, adding that currently, Kossan has managed to secure buyers for more than 85 per cent of the new capacity.

As such, the research firm pegged the target price at RM3.64 per share, based on a price earnings ratio of 10-fold.