Kossan in its latest financial report missed its earnings projections, the rubber glove maker reported a net loss of -RM34.6m in 3MFY23, after deducting a one-time off item of RM10.3m. The earnings came in below consensus full-year FY23F estimation of a net profit of RM85m and RM68.2m said MIDF. The negative deviation was mainly attributed to lower-than-expected sales volume, which lowered plant utilisation and raised production cost per unit. No dividend was declared during the quarter.
On a quarterly basis, the group’s revenue declined by -18.0%qoq to RM394.7m in 1QFY23, primarily as a result of: (1) reduced ASP and sales volume for the gloves division, as well as (2) weaker demand for clean-room goods. Additionally, the intense competition and customer destocking activities resulted in an oversupply of gloves in the market, which correlated with higher input prices, and compressed the margin. Consequently, KRI’s net loss widened further from -RM13.5m in 4QFY22 to -RM34.6m in 1QFY23.
Disappointed revenue and earnings in 1QFY23
On yearly basis, Kossan recorded a net loss of RM34.6m during the quarter, as opposed to a core PATANCI of RM89.6m in 1QFY22. This was consistent with the reduced revenue, which fell -42.8%yoy to RM394.7m. The weaker performance was primarily caused by: (1) lower revenue from the glove and clean-room divisions; and (2) increased manufacturing cost per unit because of higher energy costs (caused by higher natural gas and electricity rates) together with the low utilisation rate.
MIDF said it gathers that in 1QFY23, both the average selling price (down 3-5%qoq; down 23-28%yoy) and sales volume (down 14-18%qoq; down 28-33%yoy) continued to fall on a quarterly and annual basis. This was mainly due to the continuous supply-demand mismatch, which has caused average selling prices (ASPs) to drop dramatically since FY21 as well as the normalising demand for gloves post-reopening that weakened the demand for gloves and lower sales volume.
The cost of raw materials for the group decreased considerably on a yearly basis. Notably, price of Nitrile Butadiene rubber (NBR) experienced the most significant drop, decreasing by 25─30%yoy, followed by the price of Natural rubber (NR), which saw a decrease of 15─20%yoy. Price of NBR continued to decline on a quarterly basis by 1 ─2%qoq, while the price of NR increased by 3─7%qoq. The increase in NR price can be attributed to decreased production brought on by the winter season, which is anticipated to last until May 2023.
The house slashed its earnings estimation for FY23F-25F given the result of underperformance. Post earnings revision, it projects a net loss of -RM54m for FY23F as opposed to the previous earnings estimates of a net profit of RM85m. And has also lowered projections for FY24F and FY25F by -35.7% and -14.5% respectively. MIDF has issued a Sell call on the stock.
