The glove maker suffered a net loss of RM24.25 million in Q1 ended March 31, 2023 (Q1 FY2023) versus a net profit of RM90.1 million in Q1 FY2022 on lower revenue from the gloves and clean-room divisions.
AmInvestment Bank Bhd has reversed its earlier optimistic outlook, prior to the Q1 results release, when it forecast a net profit of RM182 million for FY2023.
In a note today, AmInvest analyst Chee Kok Siang said the forecast was being reversed to a net loss of RM11 million expected for the year.
“Kossan’s Q1 FY2023 core loss widened to RM25 million from RM5 million in Q4 FY2022. This was primarily attributed to an 18% quarter-on-quarter decline in revenue,” he said.
Similarly, Kenanga Investment Bank Bhd almost tripled its net loss forecasts after reducing their plant utilisation assumption to 35% from 45% and cutting Ebitda (earnings before interest, taxes, depreciation and amortisation) margin assumption to 1% from 5%.
AmInvest expects natural gas prices to decrease by 15% in Q2 FY2023. Combined with rising average selling prices (ASPs) in the second quarter, losses may narrow going forward.
“However, as our earnings forecast cannot yet support current high valuations, we advise investors to take profit.
“Even so, we note that Kossan has adequate financial resources with a substantive net cash of RM2 billion (translating to RM0.77/share) or 61% of the current market cap. This offers the strongest buffer against negative shocks,” it said.
Outlook remains gloomy
Demand is expected to remain weak, with customers having no urgency to place huge orders in the near-term due to stockpiling.
PublicInvest Research noted that cost pass-through would be limited in the industry due to intense competition.
“We understand that other players are starting to raise their selling prices but we generally believe that this would not be sufficient to turn the business profitable,” it said.
Kossan is expected to remain loss-making in the consecutive quarter.
Looking further ahead, research houses are divided on the speed at which Kossan will experience a recovery.
MIDF Research has lowered profit projections for FY2024 and FY2025 by 35.7% to RM86 million and 14.5% to RM184 million respectively, considering the oversupply and higher input costs.
However, Kenanga maintains FY2024 forecasts of a RM22.4 million net loss.
Nevertheless, sentiment is negative on Kossan with all four houses maintaining an “underperform” or “sell” call on the counter.
Kossan’s share price dipped 1.6% or 2 sen to RM1.25 today, giving it a market capitalisation of RM3.2 billion.