Kossan Rubber’s (Kossan) dipped into a net loss of RM2.5m in 4QFY22 against a net profit of RM23.3m in 3QFY22. For FY22, net profit declined by 94.5% YoY to RM156.6m mainly due to weaker average selling prices (ASP) and lower sales volume. The results were within our expectation but below consensus estimates at 96% and 94% of full year forecasts respectively. While the technical rubber (TRP) segment contributed a revenue growth of 16% YoY, the gloves and clean-room divisions revenue posted declines of 68.1% and 38.6% YoY respectively. We maintain our Underperform call. Our TP of RM0.83 is based on 16x PER on 2-year average forward earnings .
- 4QFY22 results highlight. Kossan’s 4QFY22 group revenue was down 14.1% QoQ to RM481.5m due to weaker contribution from the glove and TRP divisions. Gloves saw a 13.3% QoQ drop in revenue to RM402.7m, due to the decline in ASP and volume sold, while TRP’s revenue dropped 31.3% QoQ to RM44.4m. However, cleanroom division posted a slight increase of 8.6% QoQ to RM34.4m. Meanwhile, Kossan’s PBT dropped 96.6% YoY to RM0.96m mainly due to a decline in ASP (42-47%) and sales volume (25-27%). This was partially mitigated by lower prices of its raw materials i.e nitrile butadiene and latex.
- 4QFY22 dipped in red with net loss. Kossan reported a net loss of RM2.5m in 4QFY22, compared to a net profit of RM23.3m in 3QFY22, due to a lower profit from gloves and cleanroom divisions. Glove division recorded a loss before tax of RM22.7m in 4QFY22 from RM1m PBT in 3QFY22, mainly due to a higher energy cost following a hike in natural gas tariffs, intense market competition and lower plant utilization. Cleanroom division’s PBT dropped by 8.6% QoQ to RM34.4m in 4QFY22, due to a lower margin. Meanwhile, TRP’s PBT increased by 35.5% QoQ to RM7.6m in 4QFY22 due to a better performance in the infrastructure segment.
- Outlook. Overall market demand remains weak with consumption falling below pre-pandemic level, mainly due to stockpiling and inflationary pressure. Therefore, we believe major customers would not have the urgency to place huge orders in the near term. We expect losses to persist among the glove makers as demand remains weak and they are not able to fully pass on the rising costs to buyers given the current competitive operating environment. We understand that other players are starting to raise their selling prices but we generally believe that this would not be sufficient to turn the business profitable. As such, we expect Kossan to remain loss-making in the coming quarter.
Source: PublicInvest Research - 17 Feb 2023