KOSSAN: Earnings Miss Expectations Amid Softer Demand, Target Price Revised Lower
| Key Data | Value |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Kossan Rubber (KRI MK) reported a 6M25 core net profit of RM73 million, falling below both PhillipCapital’s and consensus estimates. The first-half revenue for 2025 slipped 1.4% year-on-year to RM870 million, primarily due to softer demand across key segments.
Performance Review
The weaker performance was largely attributable to declines in the technical rubber products segment, which saw a 9.6% year-on-year drop, and the cleanroom division, down 1.2% year-on-year. The technical rubber gloves segment remained relatively flat, recording a marginal 0.2% year-on-year increase. On a sequential basis, 2Q25 revenue experienced a significant 22% quarter-on-quarter decline. This downturn was mainly driven by a 10-day production halt caused by a gas pipeline explosion and reduced demand amidst ongoing US tariff uncertainty. All operating divisions, including gloves, cleanroom, and technical rubber products, recorded lower revenue quarter-on-quarter. Despite the revenue challenges, lower raw material costs provided some relief, lifting the EBITDA margin by 1.9 percentage points to 14.7% and boosting core earnings by 17%.
Operational Challenges and Market Dynamics
The company faced a lower utilisation rate, estimated at 60-64% in 2Q25, a decrease from 65-70% in 1Q25, against its rated capacity of 30.5 billion pieces per annum. Analysts expect average selling prices (ASPs) to remain constrained without meaningful upside due to intensified competition in the market. The persistent structural challenges and global overcapacity continue to exert pressure on both sales volume and margins.
Outlook and Recommendation
PhillipCapital has revised its 2025-27E earnings forecasts downward by 11-23%, citing lower sales volume assumptions. Consequently, the 12-month Target Price (TP) has been lowered to RM1.63 from RM1.94. This revision is based on a reduced Price-to-Book Value (P/BV) multiple of 1.1x (from 1.3x), aligning with the company’s 3-year historical mean, reflecting the ongoing market challenges. Despite the downward revision in earnings and target price, Kossan Rubber maintains a strong balance sheet with RM1.7 billion net cash, which provides flexibility for potential special dividend declarations. PhillipCapital maintains its “BUY” recommendation for the stock.
