Profit above our expectation despite QoQ ASP decline
Kossan’s 1Q22 net profit of MYR90m (-92% YoY, -59% QoQ) was above our expectation. The QoQ decline in 1Q22 earnings performance was mainly dragged by lower ASP (about -22% to -27% QoQ). Nonetheless, we raise our earnings forecasts by 8-20% and TP to MYR1.85 (+14sen; on an unchanged 17.7x CY23 PER or -1SD of historical mean). We maintain HOLD on Kossan.
Earnings continued to trend down
1Q22 net profit of MYR90m (-92% YoY, -59% QoQ) accounted for 40%/28% of our/street’s full-year forecasts. The earnings gap was mainly due to higher-than-expected ASP of about USD30/k pcs (versus our ASP assumption of USD28/k pcs for 1Q22) and the imputation of Prosperity tax in our FY22 earnings forecasts, we reckon. The YoY and QoQ declines in 1Q22 earnings were mainly due to declining ASP and logistics challenges i.e. capacity constraints on transport vessels.
More on 1Q22 results
The QoQ decline in 1Q22 earnings was mainly due to: (i) -22% to -27% decline in blended ASP to about USD30-35/k pcs (from c.USD40-45/k pcs in 4Q21) and -5% to -10% decrease in sales volume in 1Q22; and (ii) gloves manufacturing division’s PBT margin declined to 18.2% in 1Q22 (- 15.6 ppt QoQ) notwithstanding a -30% to -35% QoQ decline in NBR cost.
Earnings adjustments
We raise our FY22/23/24 earnings forecasts by 20.4%/7.9%/8.4% after i) removing prosperity tax as impact is likely to be muted since most subsidiaries report