Kossan expects impact from recent progress in vaccines development
KUALA LUMPUR: Kossan Rubber Industries Bhd’s (Kossan) average selling price (ASP) has been projected to be 40 to 50 per cent higher in the first quarter of financial year 2021 (1QFY21) compared to 4QFY20.
However, analysts also opined that the recent progress in vaccines’ development will affect the ASP of gloves as the urgency of glove orders would be reduced post-pandemic.
Following a conference call with Kossan, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted that ASP in 1QFY21 is expected to be 40 to 50 per cent higher compared to 4QFY20 and expect some increase in 2QFY21 and a milder increase in 3QFY21.
Kenanga Research recalled that in a meeting end-4Q of 2020 (4Q20), management highlighted that it is difficult to predict when ASP will retrace but they stopped short of hinting ASP hikes will gradually ease sometime in 4Q20, but more likely to be the case in 2022 (rather than a steep decline) depending on the outcome of the effectiveness of Covid-19 vaccines.
“A retracement in ASP then, if any, would likely in their view, be gradual and be cushioned by restocking activities,” the research arm said.
“The group is confident of sustained strong demand with orders lined up till the end of the current year while capacity ramp-up is on track to commence gradually and staggered throughout October, November and December.”
Going forward, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) expected Kossan to continue to capitalise on strong glove demand by adding circa 3.5 billion pieces capacity in FY21.
“While ASPs in 4Q20 rose sharply (more than 50 per cent), Kossan expects 1Q21 ASPs to continue on the uptrend, with an estimated further 50 per cent increase in ASP,” HLIB Research noted.
The research arm reckoned that this is achievable as Kossan’s ASPs would still lag market prices by 20 to 30 per cent.
“This is in line with our in house view that glove ASPs will continue to sustain for the remainder of FY21 and possibly begin to taper downwards in 4Q21.
“Note that despite increase in overall market glove supply, we still expect there to be a shortfall of approximately 12.5 billion pieces in FY21.
“Kossan shared that sales have been locked in for the entirety of FY21, with spot orders accounting for 10 to 15 per cent of total sales.”
Meanwhile, AmInvestment Bank Bhd (AmInvestment Bank) believed that the recent progress in vaccines’ development will affect the ASP 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-Covid19 due a wider adoption of gloves usage from non-medical industries such as food and beverage (F&B), services, retail and so on,” the research firm opined.