Review

• Kossan Rubber Industries Berhad’s (Kossan) 9M24 net profit of RM92.3mn was below our expectations but within consensus forecasts, accounting for 48.8% and 71.5%, respectively. The variance was largely due to higher-thanexpected operating costs.

• QoQ, 3Q24 net profit dipped 6.1% to RM29.4mn despite higher revenue of 18.0% to RM507.4mn. We attribute the weaker performance to TRP and clean-room segments. Kossan’s TRP division saw a 24.1% QoQ revenue increase, but its PBT plunged 48.8% to RM5.4mn due to the drastic appreciation of Ringgit against the USD. Additionally, the cleanroom division PBT declined by 20.9% to RM2.0mn on the back of higher raw material costs.

• Positively, the gloves division recorded a higher PBT of RM35.7mn in 3Q24, compared to RM22.1mn in 2Q24. The stronger performance was driven by a 16.6% increase in sales, reaching RM411.8mn, due to the carryover of delayed shipments from the preceding quarter, although partially offset by the strengthening of the Ringgit.

• The commendable 9M24 performance is primarily driven by the gloves division. The glove division PBT stood at RM78.6mn, compared to an LBT of RM15.8mn in 9M23, boosted by higher sales volume and improved operating efficiency.

• The board declared a first interim dividend of 2.0sen and a special dividend of 6.0sen per share, bringing total dividend for 9M24 to 8.0sen per share (vs. 4.0sen in FY23).

Impact

• We cut FY24/25/26 earnings estimates by 28.9/4.1/3.7% after increasing the operating expenses by 8.4%.

Outlook

• For 4Q24, we expect the ASP to increase by c.6-9% per 1000 gloves underpinned by demand and the cost-pass through mechanism. Meanwhile, management anticipates another weak performance from the TRP division due to a slowdown in infrastructure projects.

• Overall, we remain optimistic about the group’s prospects in 2025, as Kossan is expected to benefit from higher US tariffs on Chinese-made medical gloves, which are set to rise to 50% in 2025 from the current 7.5%.

Valuation

• We reiterate our Buy recommendation with a higher TP of RM2.68/share (from RM2.10) based on 1.8x FY25 P/B.

Source: TA Research - 18 Nov 2024