PETALING JAYA: Kossan Rubber Industries Bhd
may see stronger fourth-quarter (4Q24) earnings, following a revision in average selling prices (ASPs) that began late last month.
The company’s 3Q24 results were below expectations, mainly due to unfavourable foreign-exchange (forex) rates and higher raw material costs.
However, its operating dynamics are expected to improve, with potential benefits from the US-China trade tensions, which could persist in the near term due to geopolitical realignments.
RHB Research said moving forward, the industry’s blended ASPs may increase by at least US$1 to US$2 per 1,000 pieces of gloves by 4Q24, particularly if industry players are unable to cope with changes in the forex rate with respect to the US dollar.
It noted that demand growth momentum should remain healthy, as indicated by the Statistics Department’s export data, with 3Q24 glove exports recording a strong 20% growth compared to 8% in 2Q24.
Kossan’s share price is likely to stay supported, bolstered by a special dividend of eight sen per share, in addition to the two sen interim dividend recently declared.
“This represents a cumulative nine-month 2024 (9M24) payout ratio of 278% and yield of 3.5%.
“This generous capital management is a huge booster to reward shareholders,” UOB Kay Hian Research said.
Kossan posted a 28% drop in net profit to RM29.44mil or an earnings per share of 1.15 sen in 3Q24.
Revenue for the period rose by 25.75% year-on-year to RM507.39mil due to a hike in revenue for all of its business divisions.
Meanwhile, MIDF Research expected Kossan’s profit margin to gradually improve due to the continued recovery in demand and ongoing production efficiencies.
However, it noted that Kossan’s cumulative 9M24 financial performance had come in at the lower end of its expectations, making up 70.4% of its full-year 2024 (FY24) earnings estimates.
This result was also below consensus expectations, which stood at 59.6% of full-year earnings estimates.
MIDF Research revised its FY25 and FY26 earnings estimates upwards by 13.3% and 7.7%, respectively, as it assumes higher demand for the company’s products, primarily in the glove division.
“Following our earnings upgrade, our target price (TP) has been revised upwards to RM2.14 from 1.89 previously. Note that we retained our TP to earnings ratio of 39.4 times,” the brokerage added.
