KOSSAN: Strong Earnings Driven by Cost Efficiencies, ‘BUY’ Rating Maintained

Core net profit for the recent financial period significantly exceeded expectations, primarily driven by robust cost management and improved production efficiencies. This positive performance was achieved despite an overall decline in revenue, underscoring the company’s resilience in challenging market conditions.

Performance Review

The company’s full-year 2025 revenue recorded a 9% year-on-year decrease, settling at RM1.7bn. This decline was largely attributable to a 10-day production halt stemming from a gas pipeline incident. While sales volume saw a reduction, the company demonstrated strong operational efficiency, with gross margins improving substantially. The core EBITDA margin notably expanded by 3.4 percentage points, reaching 15.1%, which in turn fueled a significant 32% year-on-year increase in core earnings. The reported core net profit of RM154m surpassed both internal estimates and consensus forecasts, accounting for 103% and 116% of these projections, respectively.

Operational Challenges and Utilization

On a quarter-on-quarter basis, performance across key divisions presented a mixed picture. The gloves and cleanroom segments registered modest revenue growth of 2.3% and 2.2% respectively, indicating a steady demand for these products. Conversely, the technical rubber products division experienced a 15.6% decline in deliveries, impacting overall sales volume. Despite these fluctuations, overall sales volume remained broadly stable at approximately 4.8 billion pieces for the quarter, with an average utilisation rate of around 65% of the annualised capacity. The report also anticipates a minimal impact from the newly announced 15% US global tariff on Malaysian glovemakers, primarily due to Malaysia’s dominant US market share (approximately 60%) and China’s relatively low exposure (around 6%) to the US market following the exit of several Chinese players.

Future Outlook and Recommendation

Analysts have maintained a “BUY” rating on the stock with an unchanged 12-month target price of RM1.36. This valuation is grounded on a 0.9x Price-to-Book Value (P/BV) multiple applied to the FY26E Book Value Per Share (BVPS), aligning with the company’s historical mean. The company’s strong balance sheet, boasting RM1.6bn in net cash, offers considerable flexibility, including potential for special dividend payouts. Looking ahead, an Earnings Per Share (EPS) forecast of 8.2 sen (+8.3% YoY) has been introduced for 2028E. Key risks that could impact this positive outlook include a potential resumption of China’s glove manufacturing capacity, weaker-than-expected sales volumes and average selling price (ASP) recovery, and rising raw material and natural gas prices.