Malaysia Results Preview
Consumer Cyclical | Rubber Products
16 July 2025
Shariah Compliant
Kossan Rubber (KRI MK): Unexciting Outlook; Downgrade To SELL
MYR1.23 (-15%)
MYR1.44 (USD858m)
2.8 (out of 4)
6.50m/1.52m
Oong Chun Sung
+603 2302 8126
chun.sung@rhbgroup.com
- Downgrade to SELL from Neutral, DCF-based TP drops to MYR1.23 from MYR1.62, 15% downside. We expect Kossan Rubber’s earnings for 2Q25 to improve slightly, thanks to easing raw material costs. That said, we expect the growth prospects of the rubber products sector to remain bleak, due to a longer-than-expected period of inventory consolidation, a weakening USD vs MYR, as well as challenging cost pass-throughs. Our new TP has yet to reflect KRI’s historical trough valuation (0.7x during 2022-2023).
- Results preview. We expect KRI’s 2Q25 profitability to improve slightly from 1Q25, premised on the easing of raw material prices. Its sales volume should remain subdued, due to the longer-than-expected inventory adjustment period for its US customers. Our current earnings forecast of MYR115m for FY25 remains conservative (22% below the Street estimate) as we do not foresee material ASP adjustments this year. This is because cost pass-throughs for glovemakers will remain challenging, given the intensified competition.
- Operating cost set to escalate further. The mandatory Employees Provident Fund contribution for foreign workers is set to kick off by Oct 2025. We estimate such a policy to increase the cost of production by 0.8-1% (or USD0.15-0.20 per 1,000 pieces). Separately, the expanded Sales and Service Tax or SST of 5% applicable to imported natural rubber latex and nitrile butadiene rubber or NBR latex should raise its production cost by USD0.25-0.30 per 1,000 pieces, or 1.3-1.5%. The confluence of factors mentioned above comes at a time when the industry is already grappling with intense competition and a limited ability to pass through rising costs to customers.
- The sector’s valuation may seem attractive, at about 0.9x 2025 P/BV, ie 1.2SD below its historical average of 1.2x. However, given the lack of near-term re-rating catalysts, we would not recommend that investors accumulate at this level, as the risk of an earnings disappointment in the upcoming results reporting period is high. KRI’s share price could undergo another round of correction. The last time the sector traded at such a level was during 1Q23, when industry earnings hit a trough during a period of consolidation.
- Earnings revision and valuation. Our earnings estimates are largely unchanged. We lift our risk premium assumptions to take into consideration the higher risk associated with cautious investor sentiment in view of a potential earnings disappointment. Our new (and lower) DCF-derived TP of MYR1.23 implies a 0.8x FY26 P/BV, which is 1.4SD below its 3-year historical average. Key upside risks: Improving US-China ties, an increase in its glove ASP, faster-than-expected spike in its utilisation rate, and lower-than-expected raw material prices.
Share Performance (%)
| YTD | 1m | 3m | 6m | 12m | |
|---|---|---|---|---|---|
| Absolute | (49.1) | (8.3) | (22.2) | (41.2) | (41.0) |
| Relative | (42.7) | (9.6) | (26.0) | (38.7) | (36.0) |
| 52-wk Price low/high (MYR) | 1.39 – 2.83 | ||||
Forecasts and Valuation
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover (MYRm) | 1,591 | 1,916 | 2,064 | 2,144 | 2,228 |
| Recurring net profit (MYRm) | 33 | 96 | 115 | 157 | 197 |
| Recurring net profit growth (%) | (80.1) | 187.7 | 20.5 | 36.0 | 25.8 |
| Recurring P/E (x) | 110.18 | 38.30 | 31.79 | 23.38 | 18.58 |
| P/B (x) | 1.0 | 1.0 | 1.0 | 1.0 | 0.9 |
| P/CF (x) | 18.06 | 29.13 | 15.77 | 14.61 | 12.86 |
| Dividend Yield (%) | 2.8 | 5.6 | 0.9 | 1.3 | 1.6 |
| EV/EBITDA (x) | 23.02 | 12.57 | 11.29 | 8.80 | 7.06 |
| Return on average equity (%) | (0.2) | 3.9 | 3.1 | 4.1 | 5.0 |
| Net debt to equity (%) | net cash | net cash | net cash | net cash | net cash |
Overall ESG Score: 2.8 (out of 4)
E Score: 3.0 (GOOD)
S Score: 2.3 (GOOD)
G Score: 2.7 (GOOD)
Please refer to the ESG analysis on the next page
Emissions And ESG
Trend analysis
KRI has installed 3.16 MWp of solar energy generation equipment as at 2022. It has also pledged to reduce carbon emissions via a “reduce and optimise” strategy.
| Emissions (tCO2e) | Dec-22 | Dec-23 | Dec-24 | Dec-25 |
|---|---|---|---|---|
| Scope 1 | 295,547 | 212,743 | na | na |
| Scope 2 | 126,020 | 86,211 | na | na |
| Scope 3 | 5,250 | 5,305 | na | na |
| Total emissions | 426,818 | 304,258 | na | na |
Latest ESG-Related Developments
KRI has introduced a comprehensive carbon accounting system and database. It has also improvised its GHG calculation methodology by taking methane (CH4) and nitrous oxide (N2O) into consideration when calculating emissions.
ESG Unbundled
Overall ESG Score: 2.8 (out of 4)
Last Updated: 20 Dec 2024
E Score: 3.0 (GOOD)
KRI employs a reduce, reuse and recycle (3R) approach in managing the impact of the pollutants from its manufacturing process. The group has embarked on energy optimisation initiatives that include a transition to a solar energy plant, LED lights, and solar-powered perimeter spotlights – which are fitted at all factories and offices.
S Score: 2.3 (GOOD)
Under KRI’s Employee Pays (Zero-Cost) Policy for its migrant workers recruitment process, workers are protected from debt bondage. Coercion into employment is also prohibited, and freedom of movement is allowed. To ensure transparency, employment contracts are made available in the workers’ native languages. Potential recruitment agencies are also required to go through an onsite due diligence audit, accompanied together with an independent consultant.
G Score: 2.7 (GOOD)
44% of its board members are independent and 22% are women. Both figures are still below the Malaysian Code on Corporate Governance’s requirements of 50% independent and 30% female directors. On a positive note, KRI provides full disclosures on its directors’ remunerations. The company also holds regular investor briefings, embodying good transparency and disclosure practices.
ESG Rating History
The following shows the ESG rating history over time:
- Jul-23: 2.6
- Sep-23: 2.6
- Nov-23: 2.6
- Jan-24: 2.8
- Mar-24: 2.8
- May-24: 2.8
- Jul-24: 2.8
- Sep-24: 2.8
- Nov-24: 2.8
- Jan-25: 2.8
- Mar-25: 2.8
- May-25: 2.8
- Jul-25: 2.8
Financial Exhibits
Financial summary (MYR)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Recurring EPS | 0.01 | 0.04 | 0.05 | 0.06 | 0.08 |
| DPS | 0.04 | 0.08 | 0.01 | 0.02 | 0.02 |
| BVPS | 1.51 | 1.43 | 1.46 | 1.51 | 1.56 |
| Return on average equity (%) | (0.2) | 3.9 | 3.1 | 4.1 | 5.0 |
Income statement (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total turnover | 1,591 | 1,916 | 2,064 | 2,144 | 2,228 |
| Gross profit | 233 | 363 | 250 | 310 | 369 |
| EBITDA | 106 | 221 | 240 | 299 | 358 |
| Depreciation and amortisation | (113) | (107) | (113) | (117) | (123) |
| Operating profit | (7) | 114 | 127 | 182 | 235 |
| Net interest | 42 | 43 | 28 | 29 | 31 |
| Pre-tax profit | 15 | 180 | 155 | 210 | 266 |
| Taxation | (18) | (37) | (37) | (50) | (64) |
| Reported net profit | (7) | 141 | 115 | 157 | 197 |
| Recurring net profit | 33 | 96 | 115 | 157 | 197 |
Cash flow (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Change in working capital | 64 | (87) | 29 | 2 | (10) |
| Cash flow from operations | 203 | 126 | 232 | 251 | 285 |
| Capex | (87) | (303) | (150) | (150) | (150) |
| Cash flow from investing activities | (162) | (149) | (118) | (117) | (115) |
| Dividends paid | (64) | (306) | (35) | (47) | (59) |
| Cash flow from financing activities | (130) | (268) | (98) | (51) | (63) |
| Cash at beginning of period | 1,348 | 1,271 | 976 | 993 | 1,075 |
| Net change in cash | (89) | (292) | 17 | 82 | 107 |
| Ending balance cash | 1,259 | 980 | 993 | 1,075 | 1,182 |
Balance sheet (MYRm)
| Dec-23 | Dec-24 | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Total cash and equivalents | 1,271 | 976 | 993 | 1,075 | 1,182 |
| Tangible fixed assets | 1,364 | 1,492 | 1,529 | 1,562 | 1,588 |
| Total assets | 4,173 | 3,997 | 4,077 | 4,212 | 4,374 |
| Short-term debt | 12 | 59 | 0 | 0 | 0 |
| Total long-term debt | 5 | 16 | 16 | 16 | 16 |
| Total liabilities | 339 | 440 | 438 | 460 | 479 |
| Total equity | 3,833 | 3,556 | 3,639 | 3,752 | 3,895 |
| Total liabilities & equity | 4,173 | 3,997 | 4,077 | 4,212 | 4,374 |
Recommendation Chart
| Date | Recommendation | Target Price | Price |
|---|---|---|---|
| 2025-05-23 | Neutral | 1.62 | 1.68 |
| 2025-05-13 | Sell | 1.54 | 1.69 |
| 2025-02-21 | Buy | 2.36 | 1.91 |
| 2025-01-09 | Neutral | 2.60 | 2.42 |
| 2024-11-18 | Buy | 2.60 | 2.33 |
| 2024-10-06 | Buy | 2.51 | 1.88 |
| 2024-08-23 | Buy | 2.55 | 1.96 |
| 2024-05-23 | Buy | 2.73 | 2.43 |
| 2024-05-15 | Buy | 2.65 | 2.74 |
| 2024-04-30 | Buy | 2.40 | 2.20 |
| 2024-02-23 | Buy | 2.20 | 1.96 |
| 2024-01-05 | Buy | 2.20 | 1.97 |
| 2023-11-16 | Neutral | 1.45 | 1.58 |
| 2023-07-28 | Neutral | 1.27 | 1.38 |
| 2023-05-15 | Neutral | 1.27 | 1.33 |
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
Investment Research Disclaimers
RHB has issued this report for information purposes only. This report is intended for circulation amongst RHB and its affiliates’ clients generally or such persons as may be deemed eligible by RHB to receive this report and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. This report is not intended, and should not under any circumstances be construed as, an offer or a solicitation of an offer to buy or sell the securities referred to herein or any related financial instruments.
This report may contain forward-looking statements which are often but not always identified by the use of words such as “believe”, “estimate”, “intend” and “expect” and statements that an event or result “may”, “will” or “might” occur or be achieved and other similar expressions. Such forward-looking statements are based on assumptions made and information currently available to RHB and are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement to be materially different from any future results, performance or achievement, expressed or implied by such forward-looking statements. Caution should be taken with respect to such statements and recipients of this report should not place undue reliance on any such forward-looking statements. RHB expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.
