KOSSAN: Earnings Outperform on Cost Efficiencies, Analyst Maintains Buy Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Kossan Rubber Industries Berhad delivered interim half-year 2025 (IHFY25) net profit of RM66.8 million, aligning with both TA Securities’ and consensus expectations. This marked a 6.2% year-on-year increase despite a 1.4% decline in revenue to RM869.5 million, primarily driven by robust performance in its glove and cleanroom divisions.
Performance Review
The glove segment was a key contributor, with its pre-tax profit (PBT) soaring 40% year-on-year to RM68.1 million. This impressive growth was attributed to higher average selling prices (ASP) and enhanced production efficiencies, which boosted the PBT margin by 2.7 percentage points to 9.3%. Similarly, the cleanroom division saw its PBT expand by 29.8% to RM6.4 million, underscoring the effectiveness of the company’s cost optimization strategies.
However, not all segments performed equally well. The Technical Rubber Products (TRP) division experienced a significant 57.4% drop in PBT to RM8.3 million, stemming from a 9.6% decline in revenue and a less favorable product mix. On a quarter-on-quarter basis, 2Q25 PBT also saw an 18.5% decline to RM38.5 million, as all business segments, particularly gloves and cleanroom, faced headwinds. These included a 10-day production halt due to a gas pipeline explosion and delays in customer orders amid uncertainties surrounding US tariff policies, indicating periods of softer utilization.
Future Outlook
Looking ahead to the second half of 2025 (2H25), TA Securities anticipates an improvement in sales volumes driven by customer inventory restocking. While intensifying competition from Chinese manufacturers in non-US markets may lead to lower ASPs, Kossan is expected to mitigate this impact by continuing its focus on optimizing cost efficiency. The TRP division is also projected to show modest improvement, supported by increased project deliveries and ongoing cost control initiatives.
Analyst Recommendation
In light of these factors, TA Securities has maintained its BUY recommendation on Kossan Rubber Industries Berhad, reaffirming a target price of RM1.50 per share. The valuation is based on 1.0x FY26 Price-to-Book (P/B), with the group’s strong cash and investment position of RM1.6 billion as of June 2025 providing additional support.
