Kossan Rubber Industries Bhd: Navigating a 79% Five-Year Loss and the Path to Recovery in the Post-Pandemic Glove Industry

The glove industry, once a pandemic-era boom sector, now faces a reckoning. Kossan Rubber Industries Bhd (KLSE:KOSSAN), a key player in this space, has endured a staggering 79% decline in shareholder value over five years, a collapse driven by volatile demand, margin compression, and operational challenges. Yet, beneath the surface of this decline lies a complex story of resilience, shifting market dynamics, and valuation debates. For investors, the question is no longer whether Kossan can recover—but how it might do so in a post-pandemic world where demand patterns and pricing power have fundamentally changed.

Earnings Recovery: A Tale of Two Cycles

Kossan's financial performance from 2020 to 2025 paints a picture of extremes. The company's revenue surged to $1.59 billion in 2021, fueled by pandemic-driven demand for medical gloves, only to plummet by 66.5% to $530 million in 2022 as global demand normalized. By 2023, revenue had further contracted to $340 million, reflecting a 35% annual drop. However, 2024 marked a tentative rebound, with revenue rising to $420 million—a 23% increase year-over-year—and trailing twelve months (TTM) revenue reaching $440 million in 2025.

Operating margins, a critical metric for glove manufacturers, tell a similarly volatile story. In 2021, Kossan's operating margin peaked at 56.63%, a testament to its pricing power during the crisis. By 2023, however, this had collapsed to 2.26%, as raw material costs surged and competition intensified. The 2024 recovery to 8.31% and the current 8.45% margin in 2025 suggest operational stabilization, albeit far below pre-pandemic levels.

The company's EBITDA of MYR 223.20 million in 2024 is a positive sign, but it remains a fraction of its 2021 peak of MYR 3.177 billion. Net profit data is sparse, but the reported MYR 122.53 million in 2024 (EPS of MYR 0.05) indicates a modest improvement from the 2023 net margin of 0.8%. Analysts project a 19% annualized EPS growth over the next three years, driven by cost discipline and potential demand normalization. However, this optimism must be tempered by the reality that Kossan's five-year average EPS growth is -36.6%, underscoring structural challenges.

Market Sentiment: From Overvaluation to Value Hunt

Investor sentiment toward Kossan has swung dramatically. In 2021, the stock traded at a P/E ratio of 353.94, reflecting pandemic-era euphoria. By 2025, the P/E had collapsed to 24.90, a level far below its 10-year average of 57.89 and the Malaysian market average of 13x. This correction has created a valuation disconnect: while the stock appears undervalued relative to historical metrics, its forward P/E of 36.6x and EV/Sales ratio of 2x suggest skepticism about its ability to sustain earnings growth.

Analyst coverage reflects this duality. While 14 analysts project a 19.5% EPS growth in 2025, the consensus price target of MYR 2.458 (as of November 2024) is only 0.7% above the current price of MYR 2.480. A “Strong Buy” rating exists, but it is outweighed by “Hold” and “Underperform” calls, reflecting concerns about capital allocation and margin sustainability. The stock's 30% drop in February 2025 and subsequent 21% undervaluation estimate highlight the fragility of investor confidence.

Valuation Realism: A Glove Industry in Transition

The glove industry's post-pandemic landscape is defined by two forces: oversupply and pricing pressure. Kossan's peers, including Top Glove and Hartalega, have also seen valuation corrections, but their stronger balance sheets and higher ROCE (8.3% industry average vs. Kossan's 4.2%) position them as more attractive long-term plays. Kossan's low debt-to-equity ratio (0.01) and robust current ratio (11.67) offer some comfort, but these metrics mask a deeper issue: the company's ability to generate returns on capital has deteriorated sharply.

For valuation realism, investors must ask whether Kossan's current P/E of 24.90 is justified by its projected 19% EPS growth. Historical data suggests caution: the company's 10-year average EPS growth is -0.4%, and its 5-year average is -36.6%. While the 2024–2025 recovery is encouraging, it remains to be seen whether this is a sustainable trend or a temporary rebound.

Investment Implications: A High-Risk, High-Reward Proposition

Kossan's journey from a 79% five-year loss to a tentative recovery is emblematic of the glove industry's post-pandemic recalibration. For investors, the key risks include:
1. Margin Volatility: Operating margins remain fragile, with raw material costs and competitive pricing pressures likely to persist.
2. Earnings Sustainability: The projected 19% EPS growth must be weighed against the company's long-term earnings decline.
3. Valuation Mismatch: A P/E of 24.90 may appear cheap, but it reflects a company with a weak ROCE and inconsistent earnings history.

However, there are compelling arguments for a cautious bet. Kossan's liquidity position is strong, and its recent margin improvement suggests operational discipline. If the company can stabilize its cost structure and capitalize on niche markets (e.g., premium gloves), it may unlock value.

Recommendation: Investors with a high-risk tolerance might consider a small position in Kossan as a speculative play on its recovery potential, but should prioritize companies with stronger ROCE and more consistent earnings. For long-term investors, the glove industry's structural challenges—oversupply, low pricing power—suggest that Kossan's valuation realism lies in its ability to reinvent itself, not its current financial metrics.

In the end, Kossan's story is a cautionary tale of boom and bust—and a reminder that even in a cyclical industry, fundamentals matter. The gloves are off, and the real test of resilience is yet to come.