Kossan Rubber (Kossan) reported a net profit of RM29.4m in 3QFY24, compared to a RM41m in 3QFY23. After stripping off non-operating items, Kossan recorded a RM21.7m core net profit in 3QFY24, down 53.1% YoY from RM46.2m in 3QFY23, mainly due to higher raw material costs and weaker USD against MYR. The results were below consensus at 57% while within our estimates at 70%. We are positive on the expected increase in sales volume from US customers following the higher tariffs set to be imposed effective January 2025. This could potentially increase ASPs, rising from USD18/1k pcs to approximately USD20-21/1k pcs. Hence, we remain our earnings forecasts for FY24F-26F, and reiterate our Outperform call on Kossan, with a higher TP of RM2.65 based on 1.7x PB multiple (latest +1SD 1-year historical mean) from 1.5x. On a side note, Kossan announced an interim and special dividend of 8.0sen.

• Revenue. Kossan's 3QFY24 revenue increase by 25.8% YoY to RM507.4m due to a higher contribution from all 3 segments including gloves, clean-room and technical rubber products (TRPs) divisions. Gloves and cleanroom divisions were up 28.2% and 30.1% YoY respectively, mainly due to higher sales volume and ASPs. Meanwhile, TRPs division's revenue increased by 10% YoY, due to higher deliveries.
• Net profit. Kossan reported a net profit of RM29.4m in 3QFY24, declined 28.1% YoY from 3QFY23. After stripping off the non-operating items, Kossan's core net profit stood at RM21.7m in 3QFY24, down 53.1% YoY mainly due to higher raw material cost and a weaker USD against MYR. Kossan's PBT margin shrank to 7.8% in 3QFY24 from 12.1% in 3QFY23.
• Outlook. Moving forward, we maintain a positive outlook on Kossan, supported by sequential improvements in sales volume as customers continue to replenish depleting inventories. Additionally, the announcement of higher tariffs on glove imports from China by the US Trade Representative, effective Jan 2025, could provide a further boost for Malaysian manufacturers, positioning Malaysian manufacturers to regain market share in the US market.

Source: PublicInvest Research - 18 Nov 2024