KOSSAN 7153 KOSSAN RUBBER INDUSTRIES BERHAD still aggressive in expansion despite global ASP decline forecast, says CGS-CIMB Research

 KOSSAN 7153 KOSSAN RUBBER INDUSTRIES BERHAD still aggressive in expansion despite global ASP decline forecast, says CGS-CIMB Research

Kossan Rubber Industries Bhd has not indicated plans to slow down production amid the global glove average selling prices (ASP) is forecasted to continue to decline going forward.

KUALA LUMPUR: Kossan Rubber Industries Bhd has not indicated plans to slow down production amid the global glove average selling prices (ASP) is forecasted to continue to decline going forward.

CGS-CIMB Research said while certain glove makers have highlighted plans to slow down their capacity expansion plans, Kossan Rubber has the least aggressive expansion plans against its peers.

"By the end of 2023, we estimate that Kossan Rubber will grow its total annual glove production capacity by 26 per cent versus total sector capacity growth of 32 per cent.

"We do not discount any possibility that Kossan Rubber may face delays and could delay the commissioning of its new production lines if unfavourable supply-demand dynamics in the glove sector remain supply-led," the research firm noted.

CGS-CIMB Research noted that the global glove ASPs should continue to decline going forward owing to aggressive expansion plans from both new and existing glove producers and slower buying patterns from customers.

"We understand that global glove buyers are keeping low inventory levels given the declining ASPs.

"In our view, nitrile and latex ASPs will continue to decline, estimated to be a 3-5 per cent decline monthly, up until the first half (1H) of 2022, to more stabilised levels of US$26-28 and US$23-25 per 1,000 pieces," it said.

CGS-CIMB Research noted that the ASP is still higher than pre-Covid-19 levels of US$22-24 and US$18-20 per 1,000 pieces.

Currently, both nitrile and latex ASPs stand at USS26-30 and US$22-25 per 1,000 pieces.

"We believe Kossan Rubber will likely face less pricing pressure compared to its peers. This is given that it took a more conservative approach in raising ASPs during the Covid-19 pandemic, as most orders were committed to long-term recurring clients.

"We estimate 20 per cent of Kossan Rubber's gloves sales (pre-Covid-19 pandemic) are made up of speciality gloves and for non-medical usage, and it had lower spot sales of below 20 per cent at the peak of Covid-19 pandemic," CGS-CIMB research said.

The research firm reiterates 'Add' for Kossan Rubber with a lower target price of RM2.20 and lowers its FY21/FY22/FY23 earnings per share (EPS) by 2.5 per cent/60.9 per cent/30 per cent.

This is to account for lower ASP forecasts to US$27/US$26/US$26 per 1,000 pieces from US$32/US$29/US$28 previously, lower sales volume and lower economies of scale.

"In tandem with our EPS cuts, our target price is reduced to RM2.20. Despite the weak earnings environment, we keep our Add rating for Kossan Rubber, backed by its current valuations at a 20.5 per cent discount to its 5-year mean of 17x, and the company's strong net cash position of  RM2.5 billion and 98 sen a share."

https://www.nst.com.my/business/2021/12/755083/kossan-rubber-still-aggressive-expansion-despite-global-asp-decline-forecast