KUALA LUMPUR: Public Investment Bank Bhd (PublicInvest) remains optimistic about Kossan Rubber Industries Bhd, pointing to sequential increases in sales volume.
According to the research firm, this growth is fueled by customers replenishing their low inventories.
"Additionally, the announcement of higher tariffs on glove imports from China by the US Trade Representative, effective Jan 2025, could provide a further boost for Malaysian manufacturers.
"This positions Malaysian manufacturers to regain market share in the US market," it added.
Furthermore, PublicInvest said this could also potentially increase average selling prices (ASPs), rising from US$18 per 1,000 pieces to approximately US$20-21 per 1,000 pieces.
Hence, the firm has maintained its earnings forecasts for financial year 2024-2026 (FY24-26) and reiterated an "Outperform" call on Kossan.
This is with a higher target price (TP) of RM2.65 from RM2.28 previously.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB Research) believes Kossan's Glove & Clean-room segments can deliver eight to 10 per cent quarter-on-quarter (QoQ) sales volume growth going into the fourth quarter (4Q) of FY24.
The firm also estimated that Kossan operated at a 72 per cent plant utilisation rate in 3QFY24, suggesting there is still room for additional orders, with about 20 per cent more capacity before reaching the optimal rate of 85 per cent.
"In terms of rubber gloves' blended ASP, we forecast Kossan to increase it by approximately USD 1–2 per 1,000 pieces to offset the recent forex impact.
"Meanwhile, Dec orders could see potential profit margin expansion, primarily driven by the "US premium" enjoyed by Malaysian players.
"For input costs, nitrile butadiene rubber (NBR) prices are expected to remain relatively flat QoQ due to lower butadiene prices, while natural gas prices are anticipated to moderate by one to two per cent.
"As for the technical rubber products (TRP) division, Kossan anticipates a slowdown in infrastructure projects in 4QFY24, which we believe will be offset by the automotive sector and stronger glove & cleanroom segments," it noted.
HLIB Research also said the US dollar has been strengthening against the ringgit since late- September, which bodes well for Kossan's Glove & Clean-room and TRP segments.
All in, the firm expects Kossan to deliver better QoQ earnings from 4QFY24 onwards.
It has maintained a "Buy" call on Kossan with an unchanged TP of RM3.00.
"We expect Kossan to deliver stronger sequential earnings from 4QFY24 onwards, underpinned by an ongoing inventory replenishment cycle, potential trade diversion by US customers to Malaysia as a result of US Food and Drug Administration (FDA) import alert issues and a higher import tariff on China in Jan 2025, along with a higher profit margin from economies of scale.
"On top of the recovery thesis in FY25, we envision potential re-rating prospects for Kossan, considering its more favourable balance sheet and income statement profile versus Hartalega Holdings Bhd," it said.