HLIB, RHB IB Maintain 'Buy' Call On Kossan Rubber Industries
KUALA LUMPUR, Oct 7 (Bernama) -- Hong Leong Investment Bank Bhd (HLIB) expects Kossan Rubber Industries Bhd (KRI) to deliver a rather flattish third quarter for the financial year 2024 (3Q FY2024), due to domestic competition and stronger sequential earnings from 4Q FY2024 onwards.
A research note said this would be underpinned by an ongoing inventory replenishment cycle; potential United States (US) trade diversion to Malaysia as a result of US Food and Drug Administration (FDA) import alert issues and higher import tariff on China in 2025; higher profit margin from economies of scales, customisation; and increased automation.
"On top of the recovery thesis in FY2025, we envision potential re-rating prospects for KRI, considering its more favourable balance sheet and income statement profile versus Hartalega Holdings Bhd.
"We maintain our 'Buy' recommendation on KRI with an unchanged target price (TP) of RM3.00," it said.
HLIB also maintained its earnings forecasts for FY2024-2026. It gathered that KRI has been currency hedging for both quoted average selling price (ASP) and receivables, for three months forward.
In FY2025 and beyond, it expects KRI to pass on the weakened US dollar to customers through an ASP increase; the cost-pass-through mechanism will be reinstated for November orders.
Meanwhile, RHB Investment Bank Bhd (RHB IB) has maintained a 'Buy' call for KRI as it is poised to benefit from the potential trade diversion with the latest higher import tariff revision on China glove makers.
In a research note, RHB IB said execution remained crucial as the weakening US dollar should be a key hindrance among investors.
"We continue to like KRI – still a sector top pick – given its solid balance sheet and above-peer margin profile.
"Our TP incorporates a four per cent discount, as KRI’s environmental, social and governance (ESG) score is 2.8 out of 4.0," said the investment bank, with TP of RM2.51 from RM2.55 previously, a 32 per cent upside from its current price of RM1.88.
Key risks to its call include a fall in gloves ASP, slower-than-expected capacity expansion, lower-than-expected utilisation rate, and higher-than-expected raw material prices.
-- BERNAMA