Kossan’s 1Q21 lifted by jump in ASP
KUALALUMPUR: Higheraverage selling prices (ASPs) boosted Kossan Rubber Industries Bhd’s net profit to RM1.04 billion for its the first quarter ended March 31, 2021 (1Q21) against RM64.8 million in the same quarter last year.
Revenue jumped 258.51 per cent to RM2.19 billion during the quarter under review from RM611.46 million previously, thanks to higher contribution from the gloves division, the rubber glove maker said in a Bursa Malaysia filing.
“The gloves division recorded revenue of RM2.09 billion in 1Q21, rising 281.75 per cent from RM548.25 million in 1Q20.
“The strong performance by the gloves division, which contributes 95 per cent and 98 per cent of the group’s revenue and profit before taxation respectively in 1Q21 was mainly attributable to higher ASPs,” it said.
MIDF Amanah Investment Bank Bhd (MIDF Research) recalled that Kossan’s operations were disrupted due to an outbreak of Covid-19 cases in the previous quarter.
“On top of that, some of the delayed shipment in the previous quarter due to the global shortage in shipping containers were likely to be brought forward to 1Q21,” commented analyst Ng Bei Shan in a note yesterday .
“Meanwhile, stabilising raw material costs coupled with improved operational efficiency helped to lift its profit margin by six percentage points to 47.5 per cent. :Sales from the gloves and clean-room segments which grew by 73.3 and 23.6 per cent respectively, more than offset the decline in the technical rubber segment, which fell by 22 per cent
“However, pre-tax profit for the technical rubber grew by 16.2 per cent quarter on quarter (q-o-q) due to better product mix while PBT for gloves surged by 79.8 per cent and clean-room division by six per cent.”
On prospects, Kossan expects the demand for gloves postpandemic to continue undergoing structural growth as a result of increased healthcare standards and hygiene awareness in both the medical and non-medical sectors.
“As such, even though ASP are projected to moderate as the demand-supply imbalance eases, demand will remain above prepandemic levels,” it added.
This sentiment was echoed by Hong Leong Investment Bank Bhd (HLIB Research) as it expects Kossan to continue capitalizing on the ongoing shortage of global glove supply by adding circa 3.5bn pieces capacity in FY21.
“In turn, we expect sales volume to be higher y-o-y in FY21. While one of Kossan’s peers have reported a slight downtrend in nitrile glove ASPs recently, we note that Kossan’s ASPs had previously lagged behind significantly. As such, we do not expect Kossan’s ASPs to decline until 3Q at the very earliest. “
MIDF Research, too, expected glove prices to remain high in the coming quarters.
“Although ASP has marched up by about 60 per cent q-o-q based on our estimates, we believe that ASP may continue to climb in the coming quarters as there is room for Kossan to catch up with current market prices,” the analyst continued.
“That said, the trajectory of the pandemic is still filled with uncertainties even as countries roll out vaccination programs. Currently, Israel, Bahrain, Chile are among the highest vaccinated countries. In the US, 63.2 out of 100 people have received vaccines and in the UK, it is 64.0 in 100.
“According to the Financial Times, 906.6 million doses of the vaccines have been given globally. On the other hand, the WHO has recently warned that the global infection rate was approaching the highest thus far.
“The roll out of various vaccines have also been met with challenges that include packaging, distribution as well as production halt due to rare side effects such as blood clot.”