Review

• Kossan Rubber Industries Berhad’s (Kossan) 1Q24 core net profit amounted to RM30.3mn (vs. net loss of RM28.0 in 1Q23), accounting for 16.0% of our full-year forecast and 20.7% of consensus estimates. We consider this as within our expectations as we expect stronger results performance ahead.

• The turnaround in 1Q24 is highly anticipated with a revenue growth of 14.4% mainly driven by the improvement in the glove division. In fact, Kossan has recorded its third quarterly profit since 3Q23, aided by its resilient TRP division and strong balance sheet.

• The glove division PBT rose to RM26.6mn (vs. LBT of RM34.9mn in 1Q23) as revenue rose to RM379.6mn (+19.6% YoY). We attribute the solid performance to lower natural gas price and higher volumes sold.

• Meanwhile, Kossan’s TRP division PBT rose 12.7% to RM8.9mn, despite lower revenue of 12.8% to RM48.9mn due to better products mix. As for the clean-room division, PBT improved to RM2.4mn as compared to RM1.6mn in 1Q23 (higher costs).

• QoQ, 1Q24 PBT surged to RM41.0mn (vs. RM3.4mn in 4Q23) on the back of 12.9% growth in revenue. This increase was also supported by higher operating income and one-off impairment loss of plant and machinery amounting to RM35.4mn in 4Q23.

Impact

• No change to our earnings estimates.

Outlook

• Moving into 2Q24, we expect the glove division earnings to improve further, driven by higher volumes. We believe that Kossan’s concerted effort enhance cost-efficiency would lead to sustained earnings recovery in FY24-25 despite prevailing operational challenges.

Valuation

• Reiterate Hold on the stock with a TP of RM2.65/share based on 1.7x CY25 P/B.

Source: TA Research - 23 May 2024