KUALA LUMPUR (Sept 22): Kossan Rubber Industries Bhd rose as much as 3% after the glove manufacturer signed a memorandum of understanding (MoU) with Institute of Rail Transit (IRT), Tongji University, China.
Last week, Kossan signed the MoU via its 70%-owned subsidiary Doshin Rubber Products (M) Sdn Bhd which manufactures and deals in rubber products.
At 11.45 am today, Kossan gained 12 sen or 2.7% to RM4.51. The eighth top gainer saw trades of 452,100 shares. It earlier hit a high of RM4.52.
Despite the signing of the MoU, analyst Jerry Lee of RHB Investment Bank Bhd told theedgemalaysia.com that Kossan’s rise today might not be due to the tie-up.
“We don’t think it is due to the MoU. Not much detail has been released,” he told over the telephone.
“After all, Kossan’s technical rubber products (TRP) segment only contributes about 10% to 15% of total revenue,” he added.
Lee said Kossan is his top pick given the firm’s expanded production capacity, which has come onstream, to produce more than 20 billion pieces.
However, AmResearch in a note today said the MoU is ‘beneficial’ to Kossan as it expands the group’s technical rubber products (TRP) range and its technical expertise and knowledge.
The research house expects an upward trajectory in earnings for both Kossan’s glove and TRP divisions.
AmResearch’s analyst Cheryl Tan said the tie-up would help market Doshin’s products, which are relevant to China’s urban rail projects, and also provide technical support to any of Doshin’s projects outside China upon request.
In return, Doshin would manufacture the rubber pads based on IRT’s designs, she added.
“We believe this signing is beneficial to the group. In addition, the group would have a stronger footing in the growing China market,” she said.
Tan maintained her FY14F, FY15F and FY16F earnings estimates. She also retained her "buy" call for the stock at RM4.39 with unchanged fair value of RM5.85.