KUALA LUMPUR: The strong earnings announced by Kossan Rubber Industries Bhd
for the third-quarter of its financial year has helped shine a more positive light on the country's beleaguered glove sector.
The trading stock of Kossan opened to strong buying interest, rising 12 sen or 8.1% to RM1.60 a share with over 10 million shares traded within the first 15 minutes of trading.
Latching on to the fortunes of its sector peer, Top Glove Corp Bhd jumped three sen or 4% at the open to 78 sen a share, and rose to the top of the most actively traded list.
Another of the leading glove manufacturers, Hartalega Holdings Bhd, climbed 10 sen or 4.3% to RM2.45 a share at the opening bell.
Supermax Corp Bhd, meanwhile, started 2.5 sen or 2.9% higher at 88.5 sen a share, and Careplus Bhd rose one sen or 3.6% to 28.5 sen a share.
Returning to the black for the first time in four quarters, Kossan turned in its report card yesterday for the third quarter with significantly improved year-on-year results.
For the three months ended Sept 30, 2023, Kossan recorded a net profit of RM40.97mil, which was a leap up from RM23.26mil in the year-ago quarter, due to improved cost control management and lower raw material costs in the quarter under review.
However, the lower average selling price and weak sales volumes continued to beset the company, as reflected in its revenue of RM403.48mil in 3QFY23, which was 28% lower than in the same quarter of the preceding year.
The glove producer said in a filing with Bursa Malaysia it is anticipating the challenging operating environment to persist over the remainder of 2023.
"Despite these immediate market challenges, the long-term outlook for glove demand remains positive, driven by increasingly stringent standards and heightened hygiene awareness in both the medical and industrial sectors," it said.
On the back of the results announcement, Hong Leong Investment Bank (HLIB) research upgraded Kossan to "hold" from "sell" and raised its target price to RM1.35 after revising its forecasts higher to incorporate lower cost assumptions.
"Taking cue from the positive performance reported by Kossan in 3Q23, we think that outlook for glove makers is turning brighter, attributed by an uptick in orders experienced.
"Despite potential challenges in q-o-q earnings due to rising raw material prices, our projections indicate Kossan will maintain profitability in the upcoming quarter and throughout FY24-25f," it said in a results note.
TA Securities Research maintained its "buy" recommendation on Kossan with a higher target price of RM1.75 as it expects Kossan's performance to improve further in 4QFY23.
"It will be aided by increased operational efficiency amid higher sales volumes as customers are expected to replenish inventories," it said in a separate report.
