Analysts raise earnings estimates on Kossan

KUALA LUMPUR: Analysts are revising higher their earnings forecasts on Kossan Rubber Industries Bhd following the release of its estimate-beating first quarter results.

The glove maker yesterday announced 1QFY21 core net earnings of RM1.1bil, which was above analysts expectations, on the back of higher-than-expected average selling prices (ASP) of gloves.

Kossan declared an interim dividend of 12 sen per share for the quarter.

AmInvestment Bank Research, which has a "hold" call on the counter, raised its fair value on the stock to RM3.65 from RM3.60 based on an unchanged price-earnings of 18x FY22 earnings pers share.

It said 1QFY21 core net earnings came to 63% and 43% of its and market full-year estimates respectively.

The research house raised its FY21 core net profit forecast by 38% as it increased its ASP assumption to US$47 per 1,000 pieces from US$45 previously while revising its average cost of natural gas to RM25/MMBtu from RM34.80.

It also increased its FY22 net profit estimate by 2% to account for a weaker US dollar to ringgit conversion assumption.

However, it anticipates that ASPs will decline in the second half of the year.

"Glove urgency is expected to wane as global Covid-19 vaccination measures start to take effect.

"However, the demand for gloves will likely remain stable post-Covid-19 following the wider adoption of gloves in developing countries," it said.

Meanwhile, Kossan's core profit came to 42% of Kenanga Research's full-year estimate.

Kenanga raised its FY21 net profit forecast by 37% to account for the higher ASP but maintained its FY22 forecast.

Moving forward, it said a retracement in ASP, if any, would likely be gradual and cushioned by restocking activities.

The research house reiterated "outperform" on the counter with an unchanged target price of RM6 based on 12x 2022 forecast earnings per share.

PublicInvest Research has also maintained its forecasts on Kossan pending an analyst briefing.

It kept its trading buy call with an unchanged target price of RM6.10.

"We reckon that the rising Covid-19 cases in multiple countries, including Malaysia, should help to lift sentiments on the glove sector in the near term," it said.
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