Kossan Rubber's 3Q24 core net profit of MYR22m, Maybank said was below and consensus estimates. The house said however it expects stronger earnings in 4Q24 due to increased sales volume and better ASP as well as stablising USD/MYR rate. Subsequently Maybank is lowering its FY24/25/26E earnings by 4-9% and offers a new TP is MYR2.49 -8sen; on unchanged 1.7x FY26E P/B).

Maybank said it continues to like Kossan on its strong balance sheet and more diversified income stream and maintains a Buy call on the stock.

Results hit by higher raw material costs and forex
Excl. MYR27.8m unrealised forex loss, MYR30.4m gain on derivatives and MYR5.2m fair value gain on financial assets, KRI's 3Q24 core net profit of MYR21.7m lifted 9M24 core net profit to MYR73.6m, accounting for 63%/61% of our/consensus' FY24E. The earnings shortfall was mainly due to higher raw material costs and realised forex losses.

More on 3Q24 results ...
Despite a +18% QoQ increase in 3Q24 revenue, core net profit declined by 19% dragged by lower pretax margin in its technical rubber products and cleanroom gloves + others divisions. Plant utilisation rate (for gloves) is estimated at c.72% (based on ASP of USD21/k pcs vs. 66% in 2Q24) on 24.5b pcs. p.a. capacity. 4Q24 margin is expected to improve due to better utilisation rate and ASP on higher glove demand and stablising USD/MYR currency rate

Earnings adjustments
The house is lowering its FY24/25/26E earnings forecasts by -8.4%/-8.8%/-4.4% after factoring in higher raw material costs and higher dividend payout for FY24. KRI's balance sheet remained strong with MYR1.8b in net cash (71sen/sh) as of end-3Q24. KRI also declared a total net DPS of 8sen (2sen interim and 6sen special) for FY24 YTD – above expectation.