Value resurface s after recent slump: We reckon glove players are not out of the woods yet, as the outlook continues to be clouded by the worrying oversupply situation and intensified competitions from new players (particularly from China), causing a significant plunge in glove ASPs and lacklustre utilization rates. Nevertheless, valuations have become undemanding following recent slide in glove stocks’ prices. Referring to the data shown in Figure#1, we gather that KOSSAN is currently trading at a steep 29% discount against its NTA. In terms of NCPS (net cash per share), KOSSAN has the highest NCPS to stock price ratio of 82% among its peers (vs peers’ 12-36%). We believe such attractive valuation could serve as a downside cushion

Apart from the undemanding valuation, we view KOSSAN’s relatively smaller production capacity as a redeeming feature, considering any potential increase in orders is more likely to fill up KOSSAN’s capacity sooner, thus improving the overall utilisation rate. All in, HLIB reiterates a HOLD call in KOSSAN with a TP of RM1.44.

Buy during a distressed panic sale? Looking at the historical glove counter’s share price movement pattern, we note that whenever there is a knee-jerk selldown, a relief rally is likely to happen after consolidating for 5-15days. Taking cue from last week’s huge selloff (potentially a selling climax driven by panic selling), we view it as an opportunity to buy on dips in anticipation of an oversold rebound.

Oversold rebound on the cards. Technically, KOSSAN is grossly oversold and indicators are on the mend. However, in the absence of a strong earnings catalyst from glove players, we believe the rebound will be short-lived, thus reiterating a short-term trading approach in KOSSAN. In this regard, investors are advised to take profit if KOSSAN rebounded to RM1.12-1.21-1.30 level. Cut lost at RM0.90

Source: Hong Leong Investment Bank Research - 22 Aug 2022