‘Underperform’ rating on Kossan retained

Sales volume of gloves by Kossan Rubber Industries Bhd is expected to remain stagnant in the first half of this year and its utilisation rate may not see a significant improvement.

Public Investment Bank Bhd (PublicInvest) said Kossan’s glove segment was poised to deliver lower margin in the first half, mainly due to a hike in raw material prices and energy cost.

Kossan is selling at US$16 per 1,000 pieces for nitrile gloves, while the blended average selling price (ASPs) is at US$19-US$20 per 1,000 pieces.

Chinese glove players are selling at a blended ASPs of US$15-US$16 per

1,000 pieces.

“We believe ASP growth will be limited throughout financial year 2024, largely due to intense pricing competition from Chinese glove makers.

“Its management expects sales volume to remain stagnant in the year under review, as customers are reluctant to place large-sized orders and not willing to accept any upward revisions in ASP,” said PublicInvest.

It said Kossan was running at a low utilisation rate of 50 per cent on a total of 25 billion pieces annual installed capacity, with 75 per cent of the machines aged less than 10 years old.

Kossan downsized its workforce from 6,000 to 4,000 employees in financial year 2023 to boost operating margins. The is complemented by a focused strategy on revitalising and augmenting automation and digitalisation effort.

“Raw material prices has trended upwards since October last year. We anticipate the trend would lead to a squeeze in operating margins in the first half of this year.

“Natural gas prices rose from US$2.6/MMBtu in August 2023 to US$3.1/MMBtu in October 2023, which will translate to a higher gas tariff in the first half of this year due to a time lag effect, though this is expected to normalise in the second half .”

PublicInvest has kept its “underperform” call on Kossan with a RM1.38 target price.

We believe ASP growth will be limited throughout financial year 2024, largely due to intense pricing competition from Chinese glove makers. PUBLIC INVESTMENT BANK BHD