UOB Kay Hian
Date of Report: 20 August 2025

Kossan Rubber Industries: Navigating Challenges and Poised for Recovery in 2H25

Investment Highlights: BUY Rating with Adjusted Target Price

Kossan Rubber Industries (KRI), a leading Malaysian manufacturer of rubber products, is currently rated as a BUY by UOB Kay Hian, albeit with a revised target price of RM1.57 (down from RM1.72). Despite near-term headwinds, the stock presents a compelling upside potential of 33.1% from the current price of RM1.18, underpinned by a robust balance sheet and strategic shifts toward specialty products and automation.

Company Snapshot: Kossan Rubber Industries at a Glance

• Share Price: RM1.18
• Target Price: RM1.57
• Market Cap: RM3,036.5 million (USD 719.0 million)
• Shares Issued: 2,530.4 million
• GICS Sector: Health Care
• Bloomberg Ticker: KRI MK
• Major Shareholders: Kossan Holdings Sdn Bhd (35.3%), Employees Provident Fund Board (5.78%), Abrdn Plc (5.6%)
• 52-week Price Range: RM2.87 – RM1.18

2Q25 Results Preview: Sequential Weakness Expected

Kossan is expected to deliver softer sequential results for 2Q25, impacted by:

• Lower volume sales due to slower US demand and inventory overhang among US distributors
• Softening non-US market with intensified competition
• Temporary production setbacks from the Putra Heights’ gas explosion incident in April
• Weaker average selling price (ASP) and a 3% strengthening of the Malaysian Ringgit against the US Dollar

The adjusted net profit for 2Q25 is forecasted around RM20 million, reflecting a 34% quarter-on-quarter and 20% year-on-year decline.

Key Financials at a Glance

Key Catalysts and Strategic Shifts

Anticipated Earnings Recovery in 2H25

While 1H25 earnings are expected to disappoint due to distributors’ high US inventories from 4Q24 frontloaded purchases, a significant rebound is projected in the second half of 2025 as US inventories normalize and order flows recover. Volume sales in 2H25 are forecasted to rise by 15–20%, with utilisation rates improving to 66–70% from 60% in 1Q25.

Specialty Gloves: A Focus on Higher Margins

Kossan is accelerating its move into specialty gloves, particularly cleanroom gloves, which command ASPs and margins 3–4 times higher than generic medical gloves. A new cleanroom glove production line with 720–840 million annual capacity is planned for completion by end-2026, targeting the lucrative Class 1,000 to Class 10,000 cleanroom glove market.

Operational Efficiency Through Automation

Ongoing investments in automation and manufacturing upgrades are expected to cut operating expenses, boost utilisation, and drive margin recovery. Net profit margins are projected to expand to 6.7% in 2026 from 5.1% in 2024.

Tariff Developments and Competitive Positioning

The White House’s recent reduction of US tariffs on Malaysian gloves from 25% to 19% levels the playing field against regional competitors (Indonesia 19%, Vietnam 20%, Thailand 36%). However, Malaysian glove makers are anticipated to absorb some of these tariffs due to the global oversupply.
Significantly, the US has imposed tariffs as high as 80% on China’s nitrile medical gloves, making Malaysian products more attractive and likely to support higher ASPs (estimated at US$22–24 per 1,000 pieces) for US-bound sales from 2H25 onward.

Healthy Balance Sheet and Capital Management

Kossan maintains a strong net cash position of approximately RM1.58 billion (62 sen per share), supporting the potential for special dividends as profitability recovers.

Risks and Earnings Revisions

• 2025–2026 earnings forecasts have been reduced by 10–12%, mainly due to conservative adjustments in volume and ASP assumptions.
• Non-US market competition remains fierce, especially from aggressive Chinese manufacturers. However, China’s breakeven ASP of US\$15–16 per 1,000 pieces is likely to limit excessive price dumping.

Valuation and Recommendation

• BUY rating maintained, with a revised target price of RM1.57 (factoring in net cash and pegged to 18x 2026F ex-cash PE).

ESG (Environmental, Social, Governance) Updates

• Environmental: All plants are ISO14001:2015 certified for Environmental Management Systems.
• Social: Enforces a Zero-Cost Recruitment Policy, supporting responsible labor management.
• Governance: The Board comprises nine members, including six executive directors and three independent non-executive directors.

Operational and Financial Performance Metrics

Summary: Kossan Positioned for Long-Term Resilience

Despite near-term softness, Kossan Rubber Industries’ strategic focus on specialty glove segments, operational efficiency through automation, and a rock-solid balance sheet position it well for a meaningful earnings recovery in 2H25 and beyond. The sector’s competitive landscape, tariff advantages against Chinese imports, and robust capital management further underpin its long-term investment appeal. Investors are advised to accumulate on weakness for potential upside as the glove sector transitions to a post-pandemic equilibrium.