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Kossan Rubber Industries Bhd (Kossan) reported net profit of RM30mil for 2QFY10.Annualised, 1H earnings make up 54% and 50% of our full year forecast and consensusestimates, respectively. We consider this largely in line to our forecasts.

Sales turnover for 2Q was marginally lower by 2% as compared to preceding quarter,owing to a stronger RM against the US dollar. As an indication, RM appreciated about 5%against the US dollar between April-June versus the January-March 2010 period.

Similar to other glove companies impacted by the strong headwinds of weak RM and highlatex costs, sequential contraction in Kossans EBITDA margin was seen, although the -0.9ppt drop to 17.9% is of a much smaller quantum. By contrast, margin for Top Glove

Corp (HOLD, FV: 6.25/share) and Supermax Corp (SUCB MK, Non-rated) fell -4ppts QoQ.

While pretax decreased by 6.5% QoQ due to some time lag in cost-price adjustments, netprofit was rather flattish (QoQ: -1%), helped by lower tax rate of 17% (-4.5ppts).

Management attributed this to its better production mix on higher margin gloves. To besure, 42% and 38% of total gloves sold in 2Q are powder-free and nitrile glove variants.

Maintain HOLD on Kossan with unchanged fair value of RM3.82/share based on target PEof 11x FY10F earnings. The groups focus on better margin glove variants of nitrile andpowder-free ones (76%-80%) should cushion it from potential aggressive future price

undercutting as compared to other smaller manufacturers - once supply catches up withdemand.

The group is one of the net beneficiaries of the narrowing in price differential betweennitrile and natural rubber gloves (10%-15% vs. 25%-30%) due to the high latex input costs.In addition, managements requisite for pre-secured customer orders as part of its

expansion strategy serves to truncate risks of idle capacity utilisation.

RUBBER PRODUCTS

KOSSAN RUBBER INDUSTRIES(KRI MK, KRIB.KL) 27 August 2010

Interim in line to meet FY10F forecast

Company report HOLDAmResearch Sdn Bhd

www.amesecurities.com.my

+603 2036 2292

Price: RM3.46

Fair Value: RM3.82Rationale for report : Company Resul

PP12247/06/2011(029701)

Quic

kTa

ke

YE to Dec FY09 FY10F FY11F FY12F

Core EPS (Sen) 41.7 34.7 41.4 47.0PE (X) 8.1 9.8 8.2 7.2

Source : AmResearch

Published by

AmResearch Sdn Bhd (335015-P)(A member of the AmInvestment Bank Group)

15th FloorBangunan AmBank Group55 Jalan Raja Chulan50200 Kuala LumpurTel: (03)2036-2633 (general)

(03)2072-1866/99 (dealing)(03)2070-2444 (research)

Fax: (03)2078-3162

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in thisreport may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or asolicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to tim e have a position in or withthe securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company andaffiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources thatwe believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair andreasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted forany loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of thisdate and are subject to change without notice.

For AmResearch Sdn Bhd

Benny ChewManaging Director

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Kossan Rubber Industries 27 August 2010

AmResearch Sdn Bhd 2

TABLE 2 : VALUATION MATRIX

YE to Dec FY08 FY09 FY10F FY11F FY12F

Revenue (RMmil) 897.2 837.0 1,198.1 1,457.7 1,726.4Core net profit (RMmil) 59.2 66.7 111.0 132.5 150.1

EPS (Sen) 37.0 41.7 34.7 41.4 47.0EPS growth (%) 7.4 12.7 n/a 19.3 13.3

Consensus EPS (Sen) n/a n/a 37.4 44.4 48.1DPS (Sen) 7.0 6.0 6.5 7.0 7.5PE (x) 9.2 8.1 9.8 8.2 7.2EV/EBITDA (x) 6.7 5.6 6.8 5.5 4.6Div yield (%) 2.1 1.8 1.9 2.1 2.2ROE (%) 21.5 20.3 27.6 26.4 24.1Net Gearing (%) 38.0 32.2 27.1 16.4 4.8

Source : Company, AmResearch estimates

TABLE 1 :RESULTS SUMMARY

Ye to Dec 1HFY09 1HFY10 % YoY 1Q10 2Q10 % QoQTurnover 399.1 519.3 30.1 262.8 256.5 (2.4)

EBITDA 29.0 49.3 70.4 49.3 46.0 (6.8)Interest Expense (4.9) (4.1) (2.2) (2.0)Interest Income 0.5 0.9 0.2 0.7Amortisation 0.0 0.0 0.0 0.0Depreciation (33.7) (17.0) (8.6) (8.4)

Pre-Exceptional Profit 35.0 75.0 38.8 36.3Exceptional 0.0 0.0 0.0 0.0Associates 0.0 0.0 0.0 0.0Pretax Profit 35.0 75.0 114.2 38.8 36.3 (6.5)Taxation (7.3) (14.4) (8.3) (6.1)Minorities (0.3) (0.2) (0.1) (0.1)Net Profit 27.5 60.4 119.9 30.4 30.0 (1.2)

EPS (sen) 17.2 37.8 119.9 19.0 18.8Net DPS (sen) 0.0 0.0 0.0 0.0BV/Share (RM) 2.23 2.52 2.33 2.52

EBITDA margin (%) 7.3 9.5 18.8 17.9Pretax margin (%) 8.8 14.5 14.8 14.1Effective tax rate (%) 20.8 19.2 21.4 16.9

Source : Company, AmResearch estimates