THE very notion that the COVID-19 virus is industry-blind has been proven right yet again.
The ‘invisible enemy’ came back to haunt the glove industry with Kossan Rubber Industries Bhd disclosing to Bursa Malaysia (kudos for being transparent) an additional 563 positive cases as of Dec 21 following a re-screening of employees in its COVID-19 affected plant premises.
This raises the total number of cases to 990 after the group reported 427 positive cases out of 2,104 employees from its Meru, Klang plant after having screened 7,004 workers at six locations between Dec 4 and 10.
The factory stopped operations for sanitisation work which has been completed. Thereafter, the group will undergo random sampling for antigen test due to asymptomatic symptoms every two weeks (20% of workers).
With the plant having to remain closed until Dec 30, Kenanga Research projected temporary loss in production to be 25% of total output volume for one month which is expected to impact the company’s FY2020E bottom line by 3-5%.
Against the backdrop of temporary disruption in production, the research house has conservatively reduced Kosan’s target price to RM7.50 (from RM9.36 previously) although it maintained the company’s “outperform” rating.
In our article entitled “It’s a lose-lose affair when COVID-19 strikes” yesterday, FocusM has highlighted the need for employers – especially those in a labour-intensive working environment – not to let their guard down nor stinge on the welfare of its workforce.
Ensuring proper accommodation with ample space for social distancing and hygiene may seem a costly investment but at the end of the day, this could prove to be a better investment than to encounter disruption from their employees been ruled invalid by becoming part of the country’s ever rising COVID-19 statistic.
Kossan is not alone in this predicament as domestic leather upholstery maker, Pecca Group Bhd, is similarly affected with suspension of operation from Dec 21 to 27 (subject to approval from the Health Ministry) after 246 of its employees were tested positive for COVID-19.
Hong Leong Investment Bank (HLIB) Research estimated the impact from loss of earnings and cost of testing for the group-wide employees and sanitisation works to be circa RM1 mil to RM1.5 mil.
“The positive cases of COVID-19 will affect the group’s operation in the short term due to production suspension and risk of limitation on production capacity once MOH approves for operation resumption,” justified the research house.
“The group may need to incur higher production cost for increase in shifts/overtime (to catch up the temporary loss of productions) in order to meet the current high demand (especially for Perodua production).”
Nevertheless, HLIB Research maintained its “buy” rating on Pecca but with a lower target price of RM1.68 (from RM1.75 previously).
“Despite the short-term negative impact, we are not overly concern on the long term prospects of Pecca,” added the research house.
At 9.32am, Kossan was up 2 sen or 0.4% to RM5.05 with 257,100 shares traded while Pecca was down 2 sen or 1.32% to RM1.50 with 21,000 shares transacted. – Dec 23, 2020
