KUALA LUMPUR (Aug 23): Kossan Rubber Industries Bhd (KL: KOSSAN) received several upgrades from analysts on Friday after its first-half results came in mostly within expectations.

BIMB Securities upgraded Kossan to "sell" from "hold" while Phillip Capital and TA Securities upgraded their recommendations to "buy" from "hold". Public Investment Bank upgraded its call to "outperform" from "neutral".

All four research houses agreed on Kossan's potential for positive earnings growth but noted challenges such as increased competition and rising costs, mainly due to structural issues like oversupply from Chinese manufacturers.

Meanwhile, Hong Leong Investment Bank kept a "buy" call on Kossan, Kenanga maintained its "underperform" rating, while MIDF left its "neutral" call unchanged.

Phillip Capital kept its target price (TP) of RM2.60 on Kossan, adding that the recent 16% drop in share price makes the current risk-reward profile more attractive.

It highlighted Kossan's strong balance sheet and efficient cost structure but cautioned about risks including the resumption of Chinese glovemaker capacity, weaker-than-expected sales volume, and rising raw material and natural gas prices.

TA Securities in its note set a TP of RM2.38 based on a 1.5 times calendar year 2025 (CY2025) price-to-book (P/B) ratio.

The research house noted that Kossan's cash and investments amounted to RM2.1 billion as of June 2024, representing 39.7% of its market capitalisation.

It expects glove sales volume to improve in the second half of 2024 due to increased demand as customers replenish inventory.

It also anticipates an improvement in plant utilisation rates to 65% in the financial year 2024 (FY2024) from 50% in FY2023. Kossan currently operates 129 glove production lines with an annual capacity of 24.5 billion pieces.

BIMB Securities, which has a TP of RM2.03 on Kossan, said the company’s first half of FY2024 (1HFY2024) core profit after tax and minority interests (Patami) of RM62.9 million met its expectation but fell short of street estimates.

Meanwhile, revenue and profit before tax (PBT) declined in the second quarter of FY2024 (2QFY2024) due to logistical challenges from global shipping constraints.

For 1HFY2024, Kossan's revenue increased by 12.7% year-on-year and PBT turned positive to RM79.6 million, although higher raw material and natural gas prices impacted 2QFY2024 results.

Despite the recent share price drop, BIMB expects Kossan to sustain positive earnings growth due to higher sales volumes and consistent order replenishment.

However, it cautioned that the broader rubber glove industry's recovery remains uncertain due to structural issues like oversupply from Chinese manufacturers.

Kossan shares slipped four sen or 2% to RM2 in early trade, valuing the group at RM5.12 billion.