AmInvestment raises FY20-22 earnings forecast for Kossan on higher ASP, glove sales

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KUALA LUMPUR (May 22): AmInvestment Bank Research has raised its earnings forecasts for Kossan Rubber Industries Bhd for the financial year ending Dec 31, 2020 (FY20) to FY22, buoyed by higher average selling price (ASP) and sales volume for its gloves. 

The research house has raised its earnings projection for Kossan by 62% to RM498.3 million for FY20, 62% to RM460.6 million for FY21 and 9% to RM337.9 million for FY22. 

Aminvestment has maintained its "buy" rating on Kossan with a higher fair value of RM9.72 based on a P/E of 27x FY21F EPS.

The upward projection came after the rubber glover maker posted its first quarter earnings, which the research house deemed to be “in line with expectations”.

In the first quarter ended March 31, 2020 (1QFY20), Kossan posted core profit after tax and minority interest (PATAMI) of RM64.2 million, accounting for 21% and 23% of its and the consensus full-year expectations respectively. 

AmInvestment Bank said glove demand arising from Covid-19 began to jump from April onwards. This resulted in a supply constraint and subsequently drove selling prices higher. 

Kossan has received orders close to 10 months ahead of delivery with prices to be finalized one to two months prior to delivery. 

“We like Kossan for its expansionary plans and efforts in improving quality and operational efficiency as well as increasing automation. Moving forward, we expect a stronger performance for the year due to the increased demand from Covid-19 pandemic further buoyed by its expansion plans,” the report said. 

Despite the stellar 1QFY20 result announced yesterday, Kossan shares fell 6.54% or 53 sen to RM8.10 shortly after the opening bell today. 

At 9.30am, Kossan pared some of its losses at RM8.48, still down 15 sen or 1.74%, bringing it some market capitalisation of RM11.04 billion.