PETALING JAYA: The US higher import tariffs on China glove makers will benefit Malaysian players including Kossan Rubber Industries Bhd
, which may see an estimated earnings accretion of 5% to 6% in the financial year 2025 (FY25) and FY26.
However, with the weakening of the US dollar against the ringgit, Kossan may face some challenges, although it could be mitigated with raising the average selling price (ASP).
RHB Research lowered its FY24 to FY26 earnings by 12%, 33% and 20% respectively, largely reflecting the impact of the weakening dollar against the ringgit.
Its dollar/ringgit assumptions for the period are lowered to 4.50, 4.00 and 4.10 from 4.65, 4.45 and 4.40.
It said for every 5% change in dollar/ringgit, the impact to Kossan’s FY25 and FY26 earnings is estimated at 22% and 17%.
The impact could be mitigated by glove manufacturers raising ASPs, given the weakening dollar as most of them are already in the discussion stage with customers to raise prices by at least US$1.HLIB Research maintained its earnings forecasts for FY24 to FY26, as Kossan has been currency hedging for both quoted ASP and receivables.
For FY25 and beyond, Kossan will be able to pass on the weakened dollar to customers through ASP increase, as the cost-pass-through mechanism will be reinstated for November orders.
It maintained its “buy’’ call on the stock with an unchanged target price (TP) of RM3 a share.
The research house expected Kossan to deliver a flattish 3Q24 due to domestic competition and stronger sequential earnings from 4Q24 onwards.
