by SHAHEERA AZNAM SHAH / pic by MUHD AMIN AMIN NAHARUL

KOSSAN Rubber Industries Bhd’s earnings still have more upside based on its net profit, topping RM1 billion in the first three months of its financial year 2021 (FY21), analysts said.

Hong Leong Investment Bank Bhd (HLIB) analyst Gan Huan Wen said the glovemaker will likely continue to capitalise on the ongoing shortage of global glove supply by adding about 3.5 billion pieces of fresh capacity in FY21.

In turn, Kossan’s sales volume is expected to be higher on an annual comparison in FY21.

“While one of Kossan’s peers has reported a slight downtrend in nitrile glove average selling prices (ASPs) recently, we note Kossan’s ASPs had previously lagged significantly. As such, we do not expect Kossan’s ASPs to decline until the third quarter at the very earliest,” Gan stated in a report yesterday.

HLIB maintained its ‘Buy’ call on the stock with an unchanged target price (TP) of RM5.22 pending Kossan’s earnings briefing with analysts.

MIDF Amanah Investment Bank Bhd analyst Ng Bei Shan believes the ASPs of gloves will continue to climb in the coming quarters as the trajectory of the pandemic is still uncertain.

“Glove prices are expected to remain high in the coming quarters. Although the prices have marched up by about 60% on a quarterly comparison based on our estimates, we believe ASPs may continue to climb and there will be room for Kossan to catch up with current market prices,” Ng wrote.

MIDF maintained its ‘Buy’ call on Kossan with a revised TP of RM5.83.

AmInvestment Bank Bhd (AmInvest) maintains ‘Hold’ on Kossan with a higher fair value of RM3.65 from RM3.60 based on an unchanged price-to-earnings ratio of 18 times of FY22 forecast earnings per share.

The investment bank expects ASPs for gloves will decline in the second half of the year (2H21) despite sustained demand.

“Glove urgency is expected to wane as global Covid-19 vaccination measures start to take effect. Demand for gloves will, however, likely remain stable post-Covid-19 following the wider adoption of gloves in developing countries,” it said.

MIDF revised Kossan’s earnings forecast for FY21 by 232.3%, along with the ASP and margin assumption to reflect higher ASP and better margin.

“Looking beyond 2021, uncertainties may emerge for ASP and the quantum of price adjustment cannot be ascertained at this point. We see the correction in share price as an opportunity to buy as the company is likely to register better performance in the coming quarter.

“Even as we assume a correction in ASP in FY22, valuation remains undemanding. Risks to our call include a sharper than expected fall in ASP, production and supply chain disruption,” it said.

AmInvest raised its core net profit forecast for Kossan’s FY21 by 38%, along with the increased estimation for ASP assumption to US$47 (RM193.45) per 1,000 pieces from US$45 per 1,000 pieces.