KUALA LUMPUR: RHB Research remains positive on Kossan Rubber Industries Bhd
even as the company faces margin compression risks due to higher operating costs.
The company is facing a gas-tariff review, and cost escalations in natural rubber and acrylonitrile prices. These factors, however, are offset by the strengthening of the US dollar against the ringgit since the company’s export sales are denominated in the greenback.
RHB Research said recent operating dynamics overall have turned in favour of glove manufacturers, as the research house understands that customers are more receptive to average selling price (ASP) increases in the coming months.
“We believe more meaningful price hikes are likely to take place in April and May. Conversely, Chinese glove makers are expected to raise ASPs to US$16-US$17 per 1,000 pieces from US$15-US$16 previously for the coming months based on our channel checks,” the research house said.
“On the demand side, the value of Malaysia’s first quarter glove exports surged 5% year-on-year, surpassing export volume growth. This indicates the cost pass-through mechanism’s momentum is picking up,” the research house added.
It maintained its “buy” call on the counter with a higher target price of RM2.40 based on the discounted cash flow calculation, from RM2.20.
The rating is premised on a meaningful improvement in market dynamics anticipated by the second half of the year and Kossan’s consistent dividend payout practices, the research house said.
The target price incorporates a new 5% environmental, social and governance (ESG) discount based on its 2.8 ESG score compared to the country median of three.
The score was raised from 2.6 before after the company demonstrated a reduction in carbon dioxide emissions, primarily due to higher renewable energy consumption through solar power during the year, RHB Research said.
“Following a housekeeping exercise, our 2024 and 2025 forecast earnings are raised by 4% in both years after incorporating figures from Kossan’s latest annual report,” the research house said.
RHB Research expects Kossan to deliver core profit of between RM30mil and RM35mil in its first quarter on the back of improving operating dynamics.
