ALMOST every research house applauded Kossan Rubber Industries Bhd for its outstanding 9M FY2020 performance even as the Sword of Damocles is perceived to be hanging over the heads of glove industry players – at least for now.
Whether there will be prolonged knee jerk reaction or otherwise, Kossan is poised to ride on strong orders for gloves over the next two to three years.
This is given the company’s capacity has been fully taken up until end-2021 while it is currently accepting new orders for shipments in 2022, according to TA Securities Research.
“Going into its 4Q FY2020, the management has guided that the average selling price (ASP) would be at least 50% higher than 3Q FY2020,” wrote analyst Tan Kong Jin in a results review.
“Thereafter, we expect 1Q FY2021 ASP to continue to increase at more than 30% versus 4Q FY2020’s ASP.”
At present, the spot price is at above US$100 (RM414) with spot purchase accounts for 10-15% of Kossan’s volumes.
Yesterday, Kossan reported a 232.5% jump in its 9M FY2020 net profit to RM544.6 mil (9M FY2019: RM163.78 mil) while its 3Q FY2020 net profit alone surged 609.2% to RM348.74 mil (3Q FY2020: RM49.17 mil).
Moving forward, Tan noted that Kossan’s Plant 20 (1.5 billion gloves) is expected to begin commissioning in 1Q CY2021 with full commissioning to occur by 1H CY2021.
“Thereafter, Plant 21 (5 billion gloves) would be completed in phases, whereby Phase 1 (6 lines, 2 billion pieces) and Phase 2 (10 lines, 3 billion pieces) are expected to start production in 2H CY2021 and 1H CY2022 respectively,” he pointed out.
All-in, TA Securities Research maintained its “buy” rating on Kossan with a lower target price of RM9.45 (previously RM10.30) based on a revised price-to-earnings ratio of 9.0 times its CY2021 earnings per share.
RHB Research also reiterated its “buy” call on Kossan but with a higher discounted cash flow-derived RM9.00 (previously RM8.50) on the company’s better-than-expected ASPs.
“There is also a chance for the stock to join the FBM KLCI next month, if Kossan maintains its current market cap until Nov 23,” noted analyst Alan Lim.
On the announcement by Pfizer Inc and BioNTech SE that their mRNA-based vaccine candidate has demonstrated evidence of efficacy against COVID-19, Lim noted that this is only the first interim efficacy analysis “and not the final one”.
“Additionally, after the H1N1 pandemic of 2009-2010, glove demand only fell slightly year-on-year in 2011 by 1.3% or 2 billion to 148 billion pieces per annum,” he justified.
“Other risks are lower-than-expected sales volume and higher-than-expected raw material prices.”
At 9.30am, Kossan was down 70 sen or 9.33% to RM6.80 with 7.27 million shares traded, thus valuing the company at 17.39 mil.
Pfizer and German partner BioNTech had said they had found no serious safety concerns of first successful interim data from a large-scale clinical test yet, and expected to seek US emergency use authorisation this month, raising the chance of a regulatory decision as soon as December.
If granted, the companies estimate they can roll out up to 50 million doses this year, enough to protect 25 million people, and then produce up to 1.3 billion doses in 2021. – Nov 10, 2020
