Kossan Rubber Industries Berhad’s (Kossan) 1H24 net profit of RM62.8mn (vs. net loss of RM27.6mn in 1H23) accounted for 33.2% of our full-year forecast and 43.0% of consensus estimates. We consider this to be within expectations as we expect stronger glove demand in 2H24.
The turnaround in 1H24 is mainly driven by a revenue growth of 12.7% to RM881.5mn, supported by stronger operations across all 3 segments. The glove division PBT stood at RM48.6mn as compared with LBT of RM47.0mn in 1H23 mainly due to the higher sales volume and better operating efficiency.
Meanwhile, Kossan’s TRP division PBT improved 17.8% to RM19.4mn, despite lower revenue of 4.9% to RM98.9mn due to better higher margin product mix. As for the clean-room division, PBT increased to RM4.9mn (vs. RM4.0mn in 1H23) in tandem with higher sales of 11.5% to RM50.0mn.
2Q24 PBT dipped 5.9% QoQ to RM38.6mn. We attribute the weaker performance to the glove division, whereby sales declined 7.0% to RM353.0mn due to the ongoing global shipment constraints. In addition, we note that raw material cost and natural gas price were higher in 2Q24.
Impact
No change to our earnings estimates.
Outlook
We believe that sales volume would improve in 2H24, driven by the higher gloves demand as customers replenish its inventory. Overall, we expect plant utilisation rate to improve to 65% in FY24 (vs. 50% in FY23). Note that Kossan currently have 129 glove production lines with an annual glove production capacity of 24.5bn pieces.
Valuation
Following the recent weakness in its share price, we upgrade Kossan to Buy (previously hold) with a TP of RM2.38/share based on 1.5x CY25 P/B. In terms of asset quality, Kossan’s cash and investments stood at RM2.1bn as at Jun-24, equivalent to 39.7% of market cap.
New IPO: The onshore and offshore support services provider for the O&G industry, Steel Hawk Bhd aims to list on the Ace Market!
MQ Trader 1655 views | 1 d ago
0:17
New IPO: The largest mini-market player and a leading groceries retailer in Malaysia, 99 Speed Mart Retail Holdings Bhd aims to list on the Main Market!
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....