Date of Report: September 17, 2024
Broker Name: UOB Kay Hian
Overview of Kossan Rubber
Kossan Rubber is one of Malaysia’s leading glove manufacturers, specializing in rubber gloves for medical and industrial use. The company is well-positioned to benefit from the U.S. tariff hikes on Chinese-made gloves, which are expected to lead to increased demand for gloves produced by Malaysian manufacturers, including Kossan.
Key Financial Data
- Share Price: RM 1.83
- Target Price: RM 2.42
- Market Capitalization: USD 1.1 billion
- Price-to-Earnings (PE) Ratio:
- 2024F: 33.3x
- 2025F: 20.8x
- EV/EBITDA Ratio:
- 2024F: 19.4x
- 2025F: 12.8x
- Dividend Yield:
Impact of U.S. Tariffs on Chinese Gloves
The U.S. has imposed steep tariffs on medical-grade gloves imported from China, with tariffs set to increase from 7.5% to 50% in 2025 and to 100% in 2026. This is expected to benefit Kossan, which has a strong presence in the U.S. market. The increased tariffs on Chinese gloves are likely to drive demand back to Malaysian manufacturers, enabling Kossan to capture a greater share of the global glove market.
Kossan’s Competitive Position
Kossan has a production capacity of approximately 24 billion pieces annually, making it one of the largest glove manufacturers in Malaysia. Its strong presence in the U.S. market, which accounts for about 40% of its sales, positions Kossan to benefit from the shift in demand away from Chinese manufacturers due to the tariff increases. This provides a significant growth opportunity for the company over the coming years.
Financial Outlook
Kossan is expected to experience a gradual recovery in demand and profitability starting in 2025, as the U.S. tariff hikes lead to increased orders for its gloves. The company’s revenue and profit margins are projected to improve as average selling prices (ASPs) rise, driven by the shift in global glove demand back to Malaysia.
U.S. Market Exposure
Kossan derives approximately 40% of its total sales from the U.S. market, making it one of the Malaysian glove manufacturers with substantial exposure to this market. The U.S. tariff hikes on Chinese gloves present a significant growth opportunity for Kossan, as it is expected to capture a larger share of the U.S. glove market in the coming years.
Key Financial Metrics
- 2024-2025 Financial Projections:
- 2024F Net Profit: RM 52.5 million
- 2025F Net Profit: RM 87.9 million
- 2024F Revenue: RM 2.4 billion
- 2025F Revenue: RM 3.0 billion
- 2025F Dividend Yield: 1.2%
Risks
- Downside Risks:
- Increased competition from other global glove producers, particularly from Southeast Asia
- Fluctuating raw material costs, including rubber and nitrile
- Regulatory changes in key export markets, especially in the U.S. and Europe
- Currency exchange rate volatility, particularly between the Malaysian ringgit and U.S. dollar.
Valuation and Recommendation
UOB Kay Hian maintains a BUY rating for Kossan Rubber, with a target price of RM 2.42, reflecting a 32.2% upside from the current share price. The valuation is based on a price-to-earnings ratio of 24x for 2025 earnings, which is 0.5 standard deviations above the historical mean. The recommendation is supported by Kossan’s strong U.S. market presence and its ability to capitalize on the shift in demand following the imposition of higher tariffs on Chinese gloves.
