KUALA LUMPUR (May 24): Kossan Rubber Industries Bhd saw its net profit increase 12.89% to RM51.31 million in the first quarter ended March 31, 2016 (1QFY16) from RM45.45 million a year ago, as revenue across all its divisions improved.

Group revenue was up 11.65% to RM412.28 million in 1QFY16 from RM369.26 million in 1QFY15, its bourse filing showed.

The group said all three divisions — glove, technical rubber and cleanroom — continued to register good growth in revenue ranging from 10% to 32.62% in 1QFY16.

Kossan said that despite higher production costs due mainly from increased raw material prices, natural gas cost and stiffer competition in pricing, the group's earnings before interest, taxation, depreciation and amortisation (EBITDA) only declined slightly to 20.68% from 20.93% in 1QFY15.

The group's technical rubber products division saw its profit before tax (PBT) increase 407.26% to RM6.84 million in 1QFY16 from RM1.35 million in 1QFY15.

Its glove division reported a 2.38% increase in PBT to RM58.13 million in 1QFY16 from RM56.78 million in 1QFY15 on the back of a 10% increase in revenue year-on-year (y-o-y).

Kossan said demand for its gloves was strong, with a 7.8% increase in quantity of gloves sold.

However, Kossan said the slower-than-expected profitability growth was mainly attributed to escalated production cost (increases in raw material prices and natural gas cost), slightly higher volume of gloves sold that tagged with lower profit margin in 1QFY16.

"Riffling pricing competition in certain product segment/market was another factor attributed to weaker profitability," the filing said.

"On [a] positive note, the group has less exposure in the market and product segment where the pricing pressures are intensifying; and the management has taken strategic moves to tackle the situation," it added.

On prospects, Kossan said the glove industry will continue to be under pricing competition pressure, mainly due to expanded production capacity within a short period of time.

The company is staying vigilant in the challenging operating condition and has since taken strategic moves to tackle the situation such as emphasising on its patented accelerator free nitrile gloves and other unique types of gloves.

"For the remaining quarters of the current year, our earnings will be underpinned by the balance of capacity of some 2 billion pieces of gloves spilled over from our two plants which were completed in July 2015," it added.

The group is planning to construct another new plant with output capacity of 4.5 billion pieces of gloves per annum by end of the year in Bestari Jaya and this plant is expected to be completed within the first quarter of 2018.

It is cautiously optimistic of achieving better earnings performance for the current year.

Kossan shares closed 4 sen or 0.6% higher at RM6.71 today, valuing it at RM4.24 billion.