Kossan Rubber's sales may remain stagnant in first half of 2024, says PublicInvest

NST Fri, Mar 29, 2024 09:55am - 1 month View Original


KUALA LUMPUR: Sales volume of gloves by Kossan Rubber Industries Bhd is expected to remain stagnant going into the first half of 2024 (1H24) and its utilisation rate may not see significant improvement. 

Public Investment Bank Bhd (PublicInvest) stated in a note that Kossan's glove segment is poised to deliver lower margin in 1H24, mainly due to a hike in raw material prices and energy cost. 

Kossan is currently selling at US$16 per 1,000 pieces for nitrile gloves, while blended average selling prices (ASPs)  stood at US$19-US$20 per 1,000 pieces. 

Meanwhile, the Chinese glove players are selling at a blended ASPs of US$15-US$16 per 1,000 pieces. 

"We believe ASP growth will be limited throughout FY24, largely due to intense pricing competition from Chinese glove makers. Management expects sales volume to remain stagnant in FY24, as customers are still showing reluctance in placing large sized orders and not willing to accept any upward revisions in ASPs," PublicInvest said in a note. 

The firm added that Kossan is still running at a low utilisation rate at 50 per cent on a total of 25 billion pieces per annual installed capacity, with 75 per cent of the machines aged less than 10 years old. 

Kossan downsized its workforce from 6,000 to 4,000 employees in FY23 to enhance operating margins. The initiative is complemented by a focused strategy on revitalising and augmenting automation and digitalisation effort.

 "We observe that the raw material prices has trended upwards since October 2023. We anticipate the trend would lead to a squeeze in operating margins in 1H24. 

"We also note that natural gas prices have risen from US$2.6/MMBtu in August 2023 to US$3.1/MMBtu in October 2023, which will translate to a higher gas tariff in 1H24 due to a time lag effect, though this is expected to normalise in the 2H24," it said. 

The firm reiterated its "Underperform" call on the stock with an unchanged target price of RM1.38.

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