PETALING JAYA: Kossan Rubber Industries Bhd’s plan to dispose of its vacant industrial land in Kuala Langat for RM147.8 million is a positive development as it is not economically utilised, said MIDF Research.
Proceeds from the land sale will be utilised to partly fund its new manufacturing plant in Bidor, Perak, which will commence in June this year.
Kossan also plans to centralise all its future plants at this site, after Plant 19 in Meru, Klang, which is expected to be fully commenced in Q1 FY20.
The disposal is expected to result in a one-off net gain of about RM35.4 million in FY21 for the group.
However, MIDF did not make changes to its earnings forecasts due to the non-recurring nature of the transaction.
It is maintaining a “buy” recommendation on Kossan with at target price of RM4.64.
“We believe that earnings growth for Kossan will be supported by the higher production volumes as seen in its expansion plan. Its two new plants, Plant 18 and Plant 19 will add an additional 5.5 billion pieces of new production capacity, which will increase existing capacity by 20.8% from 26.5 billion pieces to 32 billion pieces.”
With these plants, Kossan also aims to further improve its efficiency level.
“We opine that this will cushion the downward pressure in average selling price caused by the heightening competition in glove industry.”
