Kossan begins share buyback

By PRIYA VASU

KOSSAN Rubber Industries Bhd became the latest glovemaker to do share buybacks as it acquired some 2.57 million of its shares between the price range of RM4.94 to RM5.09 from the market yesterday.

The buying started as its employees fell prey to the Covid-19 virus. The company has voluntarily stopped operations in one of its affected plants involving 427 positive Covid-19 (eight locals and 419 foreigners) cases among workers at their glove division, its exchange filing yesterday noted.

Kossan has conducted Covid-19 testing for its glove division/in phases from Dec 4-Dec 10 with a total of about 7,000 workers.

“The shut plant represents about 25% of the total output. Impact of closure for two weeks is minimal at about 2% of our financial year 2020 (FY20) earnings forecast,” said BIMB Securities Research in a research note on the glovemaker yesterday.

Kossan expects the shutdown to impact 1% of its total annual volume. The Employees’ Provident Fund is actively trading in Kossan shares based on the company’s recent exchange filings. Kossan now joins Top Glove Corp Bhd and is under-taking share buybacks.

Kossan stopped operations at the impacted areas on Dec 7, to perform thorough disinfection and placed workers that have direct contact under quarantine for 14 days.

The company will conduct a second PCR test on 1,667 employees under quarantine scheduled yesterday or today, before being per- mitted to work again if confirmed healthy.

“In order to further enhance the effectiveness and make sure everything is under control, the company is looking into implementing a random test sampling for their workers every two weeks,” said BIMB Securities.

In its exchange filing yesterday, Kossan said all affected employees are currently receiving medical treatment at government medical facilities and all employees in the affected plant premise are placed under quarantine and isolation and will undergo subsequent screening.

BIMB Securities downgraded the stock to a ‘Hold’ and reduced its target price for Kossan to RM5.20, implying a price-earnings (PE) multiple of 18 times (five years historical forward PE) and rolled overvaluation to FY22 earnings per share 28.9 sen to reflect a normalised long-term earnings growth and sentiment on vaccine progress.

“Earnings growth is expected to remain strong in the next few quarters on the back of an increase in average selling prices (ASPs) at least until the first half of 2021 before gradually declining, in our view. Although ASP is unlikely to sustain at current levels in 2022, we still believe long-term gloves demand remains promising at above the pre-Covid level of 8%- 10% as the industry continues to benefit from a structural change in higher gloves usage due to greater hygiene awareness,” BIMB Securities noted.

Kossan’s affected plant premise is temporarily closed to carry out disinfection and sanitisation procedures and is expected to resume operations in stages starting Dec 21, 2020.

“Kossan’s operations have strictly adhered to the standard operating procedure issued by the National Security Council and Ministry of Health and continue to undertake precautionary and preventive measures for Covid-19 as part of the business continuity management.

“Kossan will continue to work closely with relevant authorities to ensure the safety and health of all employees,” said the glove manufacturer.

Last month, the world’s largest glovemaker Top Glove Corp Bhd reported 2,684 of its employees have tested positive that prompted the government to shut 20 manufacturing plants, half of which have since resumed operations.