$KOSSAN / 7153 (KOSSAN RUBBER INDUSTRIES BERHAD)
Research by HLIB
Buy - TP RM3.00

"Impacted by logistics disruptions"

Kossan’s 1HFY24 core PATMI came in at RM52.1m (vs -RM36m in 1HFY23), making up 28% of our (below) and 36% of consensus (below) full year expectations. Stronger +10.9% QoQ core PATMI performance was mainly driven by robust TRP segment and lower effective tax rate, whereas the glove segment was impacted by supply chain disruptions. Going forward, we expect Kossan to deliver a flattish 3QFY24f mainly dragged by the abrupt RM strength against USD, followed by sequentially stronger earnings in coming quarters, underpinned by: (i) ongoing inventory replenishment cycle, (ii) potential trade diversion from US to Malaysia, as well as (iii) higher profit margin from economies of scales. On top of the recovery thesis in CY25f, we do believe there are potential re-rating prospects for
Kossan, considering its more favourable balance sheet and income statement profile vs Hartalega. Keep BUY call on Kossan with a lower TP of RM3.00, based on a P/E multiple of 32x (reflecting its peer Hartalega’s 3-year pre-pandemic mean).

Analyst:
Chee Kok Siang
cheeks@hlib.hongleong.com.my