KOSSAN: Strong Earnings Performance Drives Positive Outlook, Target Price Revised Upwards
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An investment bank’s latest research report highlights a robust financial performance from a major rubber glove manufacturer, with 2025 core earnings significantly exceeding expectations. The report, issued by RHB Investment Bank, specifically noted the company’s strong operational performance. RHB has maintained its ‘Neutral’ rating on the stock, revising its target price slightly upwards to MYR1.15 from MYR1.14, implying a 10% upside from the previous market close of MYR1.05.
Performance Review
The company’s core earnings for 2025 reached MYR130.1 million, marking a substantial 34% year-on-year increase. This figure surpassed RHB’s own forecast by an impressive 109% and generally aligned with consensus estimates at 98%. The strong fourth-quarter performance saw core net profit jump 31% quarter-on-quarter and 78% year-on-year to MYR42.1 million. The deviation from expectations was primarily attributed to better-than-expected margins and a lower effective tax rate.
Driving Factors
The impressive outcome was largely driven by stronger-than-expected sales volumes, which led to improved plant utilisation and bolstered margins. Lower production costs, stemming from enhanced operational efficiencies within the glove division, further contributed to the strong financial results. While the company’s fourth-quarter revenue remained stable quarter-on-quarter, the strengthening Malaysian Ringgit against the US Dollar (USD/MYR: -2% QoQ) posed a slight headwind.
Challenges and Outlook
Despite the strong earnings, the report highlighted some operational challenges, including softer utilisation rates, estimated at approximately 71% for the fourth quarter. Additionally, port congestion led to the deferment of MYR35.6 million worth of shipments into January 2026. Looking ahead, RHB’s target price revision was largely a technical adjustment, incorporating the company’s significant money market placements into its valuation model. This cash position more than offset a downward earnings revision for FY26-27F. The bank maintains that the company’s valuation is “fair,” underpinned by robust operational efficiencies and consistent delivery. However, margin trends in non-glove segments, which typically contribute higher value, are currently lagging the glove division.
Key Risks
The research report identified several key risks that could impact the company’s future performance. These include lower-than-expected sales volumes, a weaker-than-expected US Dollar against the Malaysian Ringgit, and higher-than-expected raw material prices. Conversely, the reverse of these factors would represent upside risks.
