Review

• Kossan reported a 2.2% QoQ decline in 4Q23 core net profit, reducing FY23 total core profit to RM69.4mn. FY23 core profit accounted for 104% of our full-year estimates and 141% of consensus forecast.

• A single interim dividend of 2.0sen per share was declared for FY23 (vs.2.5sen in FY22).

• QoQ, PBT reduced to RM3.4mn (vs. RM49mn in 3Q23) mainly due to a one-off impairment amounting to RM35.4mn in 4Q23. Revenue remained flat (-0.8% QoQ to RM400.1mn).

• FY23 PBT softened from RM213.5mn to RM35.8mn as revenue declined to RM1.6bn (-32.3% YoY). We attribute the weaker performance to the one-off impairment loss of RM35.4mn, higher natural gas cost and higher energy and labour costs. In addition, the challenging operating environment hit volumes and ASP. As such, the glove division posted a LBT of RM25.1mn as compared to a PBT of RM142.3mn in FY22. Meanwhile, the clean-room division PBT declined by 15.2% to RM9.6mn due to the lower ASP.

• Positively, Kossan’s TRP division PBT rose 60.7% to RM37.5mn, ahead of revenue growth of 3.9% to RM204.7mn driven by higher sales of highmargin products.

Impact

• No change to our FY24/25 earnings estimates.

Outlook

• Moving into 1Q24, we expect the core performance to be flat QoQ due to the higher natural gas and raw material cost. Thereafter, we believe that 2Q24 bottom-line will improve QoQ as the industry is able to pass on the cost increase to customers.

Valuation

• Following the run-up in share price, we downgrade the stock to Hold (from buy) with a TP of RM2.15/share based on 1.3x CY25 P/B.

Source: TA Research - 23 Feb 2024