Kossan Rubber Industries reported a core net loss of -RM3.1m in 9MFY23, after excluding a one-time item of – RM16.5m. The core net loss was narrower than the consensus full-year FY23F estimation says MIDF.
The house noted that this was mainly driven by: (1) higher-than-expected sales volume and (2) lower-than-expected operating costs, thanks to reduced raw material costs, natural gas expenses, and production costs per unit. No dividends were declared in the quarter.
On a yearly basis, despite a -28%yoy decrease in revenue to RM403.5m, core PATANCI surged +73.4%yoy to RM34.3m. This was fuelled by improved cost control for the gloves division and the sale of higher-margin infrastructure products from the TRP division. Core net loss in 9MFY23 due to oversupply situation. Cumulatively, KRI reported a core net loss of -RM3.1m in 9MFY23 vs. a core PATANCI of RM146.3m in 9MFY22. This was primarily due to the lower revenue in gloves and cleanroom divisions, coupled with rising input costs, resulting in elevated production costs per unit.
Given that the earnings came above expectation, MIDF has raised the earnings forecast for FY23F from a net loss of -RM55.3m to a core PATANCI of RM37.1m. This was after factoring in (1) slightly higher sales volume, (2) updating the exchange rate to be in line with our in-house economists’ forecast, (3) lower raw material costs, as well as (4) a better operating profit margin due to the better utilization rate that lowers the production cost per unit.
MIDF also raised earnings forecast for FY24F-25F higher by 48% and 4%, respectively.
The house is also upgrading the stock to NEUTRAL from SELL. Moving forward, MIDF anticipates the ASP for the gloves division to remain flattish in the near term due to the ongoing oversupply situation and intense competition from
Chinese glove manufacturers.
On a positive note, MIDF observed a slight turnaround in the glove divisions as buyers replenished their inventory following the expiration of pandemic-related stockpiles. This could result in an improved utilization rate ahead, leading to lower production costs per unit and consequently improved margins.
The house also appreciates Kossan Rubber’s status as a net cash company, boasting a net cash position of RM1.26b (36.2% of market cap) as of 3QFY23, offering protection against downside risks.
