KUALA LUMPUR: Kossan Rubber Industries Bhd continues to witness strong global glove demand owing to Covid-19 as the company's capacity has been fully taken up until end of 2021, said CSG-CIMB.
Its analyst Walter AW said Kossan had also been receiving orders for the first quarter (Q1) of 2022 and fully filled up its allocation for spot orders, utilising up to 20 per cent of its total capacity, till end of 1Q of this year.
"Kossan has already increased its average selling price (ASP) by 40 per cent quarter-on-quarter (QoQ) in the third quarter of 2020. The demand-led environment will allow it to raise them further," he said in a report.
In a recent briefing recently, he said Kossan was expecting an ASP increase of 50 per cent QoQ in the fourth quarter of 2020 as well as in Q1 of 2021.
"It is not discounting further ASP hikes from the second quarter of 2021 onwards, given that its current ASPs are still below the industry average," said Walter.
He said Kossan was not discounting the possibility of a special dividend on top of its current dividend payout (minimum 30 per cent of net profit) to reward shareholders.
"The possible implementation of interim dividends is on the cards, in line with the recent announcement of its peers, Supermax Corp Bhd and Top Glove Corp Bhd."
He said Kossan's operations had resumed post detection of positive Covid-19 cases after halting 25 per cent of its total production capacity from December 7 to December 31 last year in view of a Covid-19 outbreak among its workers.
"We estimate the capacity loss at 1.5 per cent of Kossan's total annual output, and that the financial impact was minimal. We believe the quantum of its ASP hikes would be more than sufficient to offset the temporary capacity loss during the period."
CGS-CIMB said Kossan would likely retain its strong earnings prospects as it stands to benefit from the favourable supply-dynamics in the glove sector owing to Covid-19.