Brokers’ take: CGS-CIMB downgrades Kossan Rubber to ‘hold’ on slow demand, lower prices
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Vivienne Tay
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CGS-CIMB has downgraded Malaysian glove maker Kossan Rubber to “hold” from “add” and slashed its target price by nearly a third to RM1.38 from RM2.05.
The cut came as the research team reduced its earnings per share estimates for FY2022-24 to account for weaker average selling prices and slower demand, according to a report dated Jul 27.
Kossan’s core net profit for Q2 and H1 2022 also missed analyst expectations. The drop in net profit was mainly due to lower-than-expected sales volume and a greater-than-expected decline in average selling prices (ASPs).
The research team expects Kossan’s outlook to remain gloomy, particularly in the second half of 2022. CGS-CIMB previously believed that ASPs would stabilise at US$23-24 for every 1,000 pieces, but has now gathered that market ASPs have trended lower to US$21-22 due to sluggish demand and rising capacity in the global glove industry.
That being said, the research team noted that the company’s valuations will be supported by its strong balance sheet.
“We also believe that its share price will be supported by its net cash position of RM2.2 billion (S$683.1 million) as at end-Q2 2022, translating into 87.3 sen per share,” said CGS-CIMB analyst Walter Aw.
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Kossan is trading at 16.5 times CGS-CIMB’s earnings estimates for the 2023 calendar year, near its 10-year mean of 16.9 times.
The reduced target price implies a potential upside of 8.7 per cent from Kossan’s last trading price of RM1.27 as at 2.47 pm on Thursday. The counter was trading 3.1 per cent or RM0.04 lower at the time.
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