Is vaccination such a bane to glove stock prospects?

WHEN news broke out yesterday that the first batch of COVID-19 vaccine is arriving this Sunday – with Prime Minister Tan Sri Muhyiddin Yassin to get his jab on Feb 26 – glove stocks on Bursa Malaysia reacted negatively across the board.

Concerns abound if the vaccine could spell an end to the glorious glove stock rally which of late has somehow hit a bump.

From the market analyst perspective, the best gauge would be the review of Kossan Rubber Industries Bhd’s stock price outlook following the latter’s release of its 4Q FY2020 and full-year FY2020 results.

Yesterday, Kossan reported that its net profit for 4Q FY2020 surged 783% to RM543.82 mil (4Q FY2019: RM61.58 mil) on the back of revenue of RM1.31 bil (RM578.35 mil).

For its FY2020, the company’s net profit jumped 734% to RM1.9 bil (FY2019: RM227.86 mil) while its revenue surged to RM3.65 bil (FY2019: RM2.21 bil).

Moreover, Kossan has also declared an interim dividend and special dividend of 3 sen and 8 sen respectively.

While six of the seven local research houses assessed by FocusM maintained their “buy” rating on Kossan, majority of them had lowered the glove maker’s target price between 12.5% (by AmBank Research from RM4.80 to RM4.20) and 35.1% (by PublicInvest Research from RM9.40 to RM6.10).

Ambank Research was the only research house which maintained its “hold” call on Kossan, believing that “the recent progress in vaccines’ development will affect the average selling prices (ASPs) of gloves as the urgency of glove orders would be reduced post-pandemic”.

“Nonetheless, we hold the view that demand for gloves will remain stable post-COVID-19 due a wider adoption of gloves usage from non-medical industries such as F&B, services, retail, etc,” justified its analyst Thong Pak Leng.

Meanwhile, TA Securities Research lowered Kossan’s target price by 27.8% to RM7.05 (from RM9.01 previously), MIDF Research by 26.8% to RM7.33 (from RM10.02 previously) and Kenanga Research by 20% to RM6 (from RM7.50 previously).

On the hindsight, Hong Leong Investment Bank Research adjusted Kossan’s target price “slightly higher” (by 1.95%) to RM5.22 from RM5.12 “based on unchanged modified discounted cash flow (DCF)-valuation methodology”.

“We value Kossan using with their pre-pandemic five-year average price-to-earnings (PE) multiple of 24 times (CY2015-2019) based on sustainable earnings in a post-super normal earnings environment (FY2023) summed with free cash flows (both discounted back to present value) generated during the boom period,” noted analyst Gan Huan Wen.

Elsewhere, CGS-CIMB Research maintained Kossan’s target price at RM7.64, still liking “Kossan for its strong earnings prospects as it stands to benefit from the favourable supply-dynamics in the glove sector owing to COVID-19.”

At 10.16am, Kossan was up 11 sen or 2.79% at RM4.05 with 3.51 million shares traded, thus valuing the company at RM10.36 bil. – Feb 17, 2021


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