KOSSAN: Earnings Beat Expectations on Cost Efficiencies, Target Price Maintained

An investment bank has observed a significant boost in a key industry player’s profitability for fiscal year 2025 (FY25), even as revenue faced headwinds. The company reported a 27.9% year-on-year (YoY) increase in net profit to RM151.3 million, with its core net profit rising by 26.9% YoY to RM123.3 million. While these figures were slightly below broader market expectations, they aligned closely with the investment bank’s own forecasts, meeting 93% and 95% respectively.

Performance Review

The notable surge in profit was primarily driven by effective cost management strategies, leading to reduced operating expenses, finance costs, and taxation. In the fourth quarter of FY25 (4QFY25), net profit saw an even stronger growth of 68.5% YoY, reaching RM46.7 million, with core net profit up 73.6% YoY to RM41.0 million. This improvement was largely a result of lower production costs achieved through enhanced operational efficiencies. Consequently, the company’s overall pre-tax profit (PBT) margin improved from 8.2% in FY24 to 10.0% in FY25.

However, the revenue performance was more subdued. FY25 revenue experienced an 8.8% YoY decline, settling at RM1.75 billion. This downturn was largely attributed to a 10-day production halt in April following a pipeline explosion, coupled with lower overall deliveries and the strengthening of the Ringgit. In 4QFY25, revenue decreased by 15.1% YoY to RM439.5 million. This was impacted by weaker contributions from its gloves division (-16.5% YoY) and clean-room divisions (-26.3% YoY), partially offset by an 8.8% YoY increase in revenue from its technical rubber products (TRPs) division. Management also noted that port congestion led to the deferral of RM35.6 million in glove shipments from 4QFY25 to January 2026.

Future Outlook

Looking into FY26F, the investment bank anticipates continued stability for the clean-room division. However, market conditions for the gloves and TRPs divisions are expected to remain challenging. The persistent oversupply in the glove industry is projected to maintain pressure on average selling prices (ASPs), and a stronger Ringgit could further squeeze margins.

Despite these challenges, the investment bank maintains a positive outlook for the company. This optimism is underpinned by a stable demand for gloves from the healthcare and industrial sectors, ongoing cost optimisation initiatives through automation and digitalisation, and a robust net cash position of RM1.6 billion, which provides a significant buffer against near-term headwinds. The investment bank reiterated its Outperform call for the company, maintaining an unchanged target price of RM1.50, based on a 1.0x P/B multiple.