Company Coverage
Kossan Rubber (KRI MK): Value Emerging From Product Differentiation And Solid Financial Position
BUY (Maintained)
Current price:
Target price:
Upside:
RM1.03
RM1.26
+20.0%
Analyst
Highlights
- Our view remains unchanged from the briefing hosted by Kossan recently. The group’s specialty gloves expansion, sizeable net-cash (62% of market cap) and reasonable valuations provide commendable capital upside.
- Maintain BUY and target price of RM1.26, pegged to 14x ex-cash PE (-0.5SD below mean).
Analysis
- A tactically better 2026. Kossan Rubber (Kossan) delivered resilient 1Q26 earnings (within expectations) as volume sales improved from US customers’ re-initiated replenishment activities. For 2Q-3Q26, we expect volume sales to be 8-10% higher and utilisation rate to improve to 85-88% (1Q26: ~80%) based on the current 24b pieces capacity. Furthermore, 2Q-3Q26 earnings will also be partially lifted by higher ASP of US$24-26/’000 pcs (raised to offset higher raw material prices due to the Iran war), which will gradually normalise towards 4Q26.
- Diverting focus to specialty gloves. Given steeper industry competition, management alluded that the group is expanding its specialty gloves segment which commands higher ASPs and margins (3-4x vs generic gloves). Note that Kossan’s current cleanroom glove production line has 300m-400m pieces annual capacity to produce Class 1,000 to Class 10,000 cleanroom gloves. The group also plans to add another eight cleanroom production lines which will lift annual capacity to 700m-800m pieces in 2027. Such a strategy to penetrate the more lucrative cleanroom segment where customers are stickier allows differentiation from other local peers which typically focus on the production of generic medical gloves.
- Resilient balance sheet with net cash appealing; still a defensive sector pick. Including cash and short-term money market investments, Kossan is in a cash-rich position of around RM1.65b net cash (around 65 sen/share or 62% of its current market cap). This signifies that the group may further deploy better capital management with more special dividends as earnings momentum improves in 2026.
Highlights
- Our view remains unchanged from the briefing hosted by Kossan recently. The group’s specialty gloves expansion, sizeable net-cash (62% of market cap) and reasonable valuations provide commendable capital upside.
- Maintain BUY and target price of RM1.26, pegged to 14x ex-cash PE (-0.5SD below mean).
Analysis
- A tactically better 2026. Kossan Rubber (Kossan) delivered resilient 1Q26 earnings (within expectations) as volume sales improved from US customers’ re-initiated replenishment activities. For 2Q-3Q26, we expect volume sales to be 8-10% higher and utilisation rate to improve to 85-88% (1Q26: ~80%) based on the current 24b pieces capacity. Furthermore, 2Q-3Q26 earnings will also be partially lifted by higher ASP of US$24-26/’000 pcs (raised to offset higher raw material prices due to the Iran war), which will gradually normalise towards 4Q26.
- Diverting focus to specialty gloves. Given steeper industry competition, management alluded that the group is expanding its specialty gloves segment which commands higher ASPs and margins (3-4x vs generic gloves). Note that Kossan’s current cleanroom glove production line has 300m-400m pieces annual capacity to produce Class 1,000 to Class 10,000 cleanroom gloves. The group also plans to add another eight cleanroom production lines which will lift annual capacity to 700m-800m pieces in 2027. Such a strategy to penetrate the more lucrative cleanroom segment where customers are stickier allows differentiation from other local peers which typically focus on the production of generic medical gloves.
- Resilient balance sheet with net cash appealing; still a defensive sector pick. Including cash and short-term money market investments, Kossan is in a cash-rich position of around RM1.65b net cash (around 65 sen/share or 62% of its current market cap). This signifies that the group may further deploy better capital management with more special dividends as earnings momentum improves in 2026.
BUY (Maintained)
Current price:
Target price:
Upside:
RM1.03
RM1.26
+20.0%
Analyst
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