What? I Actually Made 27% Profits from Kossan Industries in 2.5 Years
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Share Price Gain: +14.2% (RM2.74 / RM2.40)
Total Dividend Since 2021: RM0.305 per share
Dividend Yield: +12.7% (divided by RM2.40)
Total Profit: +27%
Is this 2020? Am I dreaming? I just managed to exit my investments in Kossan Industries. For those of you who don’t know, Kossan Industries is a Malaysian glove company. It is part of what I would call the 4 Glovesmen of Apocalypse along with Top Glove, Supermax and Hartalega.
But this is 2024. Glove companies have gone out of fashion. If you tell someone that you made a profit off of glove companies in 2024, they will just laugh at you.
It was a combination of luck and a long-term mindset that made this investment possible. I am not advocating stock-picking but I do want to show the research process I took. And also to show that mindset is more important when it comes to investment.
Good Old Finding Undervalued Companies
I think you are probably tired of me saying this. But I always find companies which are undervalued and cheap. There are essentially two indicators that I look for.
Firstly, it’s the price-to-earnings (PE) ratio. In October 2021, the hype for gloves stocks was declining. And the four glovesmen of apocalypse’s valuations dropped to below 10 times.
It is here that I found Kossan was trading at a PE ratio of just below 5 times. I also checked its price-to-book ratio which was 1.21 times. That’s ok.
I was more interested in the low PE ratio. Now, Kossan’s historical PE isn’t a good guide here back then. They ranged wildly to more than 100 times during the pandemic.
Safe to say, there wasn’t any definite target PE ratio that I thought Kossan will trade at.
Kossan was Doing Fantastically Well in 2021
I am not going to lie. I didn’t spend much time analysing its financial performance in 2021. All of us knew glove companies were the big boys making a lot of money during the pandemic.
Everyone was afraid of Covid. Everyone needed gloves. And Kossan delivered its best-ever financial performance. Revenue almost tripled to RM6.6 billion in 2021 from RM3.6 billion in 2020.
Profits? Well, the highest it has ever been at RM2.9 billion in 2021.
Let’s just say I took a look, and decided they were doing very well. However, the big question was whether they were going to be so in 2 to 3 years’ time from now.
The Outlook Won’t be As Rozy
Here are my thoughts on the month of October 2021. Gloves are going down and probably be quite bad in the next two years. But while others are selling, I looked at what changed fundamentally.
The pandemic changed how governments treated their healthcare policies. They were woefully unprepared and were lacking in supplies. For the next pandemic, governments have now changed their policies to prepare stocking up significantly so that they will not be caught with their pants down.
So, no matter how low the valuation got, I thought to myself that glove companies’ prospects and demand did fundamentally improve.
How much was the big question.
I Entered at RM2.40 and For 2.5 years, I made Horrible Losses
Let me tell you. Glove companies really took a beating, far worse than what I expected. It doesn’t help that Chinese competitors were getting into the game (more on this later).
I invested in Kossan at RM2.40 in October and saw my investment get battered down to as low as RM1.00 in 1 year. Man, I have made a horrible mistake.
It humbled me. But most importantly, it also made me realise that you need some balls of steel and a long-term mindset to ride through.
I Kept My Position for A Long Time Until One Fateful Day
Uncle Sam aka the United States increased tariffs on Chinese gloves on 15 May 2024. I saw the news and I immediately prepared to exit Kossan.
I saw the price go up to RM2.81 by lunchtime and decline slightly to RM2.75. I keyed in an exit at RM2.74 and voila.
I can’t believe it. I exited Kossan with a share price gain of +14.2% in 2024. And it was due in part to luck.
Add the total dividend of RM0.305 per share that I have obtained since 2021, and it translates to a dividend yield of 12.7%.
Hence, my total profit from Kossan in 2.5 years was 27%.
Luck Plays a Part but Mindset Gets You There
If I had exited when things were going bad, I would have made big losses. Some might say that it’s better to cut your loss when you can, and I agree with that, but having a long-term mindset is more important.
There will be a lot of ups and downs (well, for Kossan, was mostly down) but braving through all of them and holding the ship steady gets you to a place where luck comes together also.
