KOSSAN 7153 KOSSAN RUBBER INDUSTRIES BERHAD faces weaker quarters on rising cost, declining selling price

 KOSSAN 7153  KOSSAN RUBBER INDUSTRIES BERHAD faces weaker quarters on rising cost, declining selling price

Affin Hwang has lowered Kossan's earnings forecasts for 2022-2024 by 18-21 per cent to factor in the quarter’s performance.

KUALA LUMPUR: Kossan Rubber Industries Bhd is expected to experience weaker quarters ahead as profit margin is expected to decline due to rising production cost while average selling price (ASP) continues to decline as demand normalises, Affin Hwang Capital said.

The firm said ASP for the first quarter (Q1) 2022 declined by 22-27 per cent quarter-on-quarter (Q-o-Q), due to the increase in supply by new manufacturers and also lower raw material prices.

The decline in ASP resulted in lower earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin for Q1 2022 at 22 per cent, which could decline further.

"We expect Kossan to continue to absorb most of the rising production costs in the coming quarters," it said in a note today.

Meanwhile, Affin Hwang said minimum wages were set to increase by 25 per cent from May 1.

"Prior to 2022, the average Ebitda margins were at 15-17 per cent. We are only expecting margins (and ASP) to stabilise by year-end, as more manufacturers have started to scale back on their expansion targets," it added.

Affin Hwang said Kossan's sales volume had declined by 5.0-10 per cent Q-o-Q in Q1 2022, which was a negative surprise to the firm, as Kossan continued to be impacted by constraints in shipping containers.

"We had previously expected sales volume to be flattish Q-o-Q.

"Our new estimates assume positive Q-o-Q sales volume growth in the second half of 2022, as we believe some Kossan customers might decide to delay their shipment due to the current high freight cost, despite the ease in supply of shipping containers recently, given that freight cost is usually borne by buyers," it said.

Affin Hwang has lowered Kossan's earnings forecasts for 2022-2024 by 18-21 per cent to factor in the quarter's performance.

The firm has maintained its "Sell" call on the stock with a higher target price of RM1.30 from RM1.20 previously.

https://www.nst.com.my/business/2022/04/792469/kossan-faces-weaker-quarters-rising-cost-declining-selling-price