Kossan Rubber Industries 23Q4 result (Affin Hwang’s take)

• 23Q4 earnings of RM36 mln (-12% QoQ; 22Q: -RM2.5 mln) brought FY23 earnings to RM49.6 mln (-68% YoY). The results were within AH but below consensus’ full-year expectations. While the company has not disclosed its operational statistics for 23Q4, AH believes it may have registered lower average selling prices (“ASP”), in lin with its peer Hartalega that saw a single digit percentage drop though it was offset by an improved sales volume
• Despite the slight blip in earnings momentum in 23Q4, AH expects the upcoming quarters to register improved earnings from stronger sales volumes. Furthermore, more industry players AH checked with expect stronger sales volume of 15% - 20% in the months of January – February 2024 coupled with ASPs having been revised up from December 2023. AH remains positive on Kossan Rubber Industries given its (i) successful cost rationalization efforts; (ii) exposure to non-glove divisions that have been resilient; (iii) net cash balance of RM2 bln (against market capitalization of RM5.2 bln) that also provies a hefty amount of interest income; (iv) potential dividend declarations once demand conditions improve
• AH maintains Buy on Kossan Rubber Industries with higher TP of RM2.40 (from RM2.00) as AH expects sales volume to improve further in 24Q1 although 23Q4 earning was below expectation