Quick take: Kossan rises 7% after earnings beat

KUALA LUMPUR: Shares in Kossan Rubber Industries Bhd rose over 7% in early trade Wednesday after it reported earnings that beat analysts’ estimates.

The glove maker, one of the top gainers on Bursa Malaysia, added 7.11%, or 27 sen to RM4.07, its highest in over two months.

Kossan’s net profit surged to RM1.04bil in the first quarter ended March 31, 2021 (1Q21) against RM64.8mil in the same quarter last year.

Revenue jumped to RM2.19bil in 1Q21 from RM611.46mil previously.

Kossan has declared a first interim payout of 12 sen a share.

Kossan said the surge in sales and profits was driven by higher average selling price (ASP) for its glove products.

AmInvestment Bank Research said Kossan’s 1Q21 core net earnings of RM1.1bil was above the house and street’s expectations, accounting for 63% and 43% of full-year forecasts respectively.

It said the strong performance was attributed to the higher-than-expected glove ASP, which AmInvestment believed may have risen by over 55% quarter-on-quarter in 1Q21.

“We raise our FY21F core net profit forecast by 38% as we increase our ASP assumption to US$47/1,000 pcs from US$45/1,000 pcs, as well as revising our average cost of natural gas to RM25.00/MMBtu from RM34.80b/MMBtu, in line with the new prices stipulated by Gas Malaysia,” it said.

The research house has also tweaked its FY22F and FY23F core net profit forecasts upwards by 2% and 1% respectively.

“Going forward, we believe that glove ASPs will see a decline in 2HFY21. 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.

AmInvestment has maintained its “hold” recommendation on Kossan with a higher fair value of RM3.65 from RM3.60 previously based on an unchanged PER of 18x FY22F EPS.

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Kossan , ASP , gloves


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