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Kossan (7153) AGM 10 key takeaways

1) Kossan 5 years CAGR in revenue and profit is 9.95% and 10.38% respectively and dividend policy is 30% (expect to get more dividend if company performed this year).

2) Kossan seeks to increase glove volume by 15-20% by this year (mainly in nitrile gloves) and nitrile: latex glove ratio is at 80:20 now.

3) Kossan order lead time is 45-60 days in normal situation and utilization rate is 85% in normal times. Currently, they have received order till 2nd half of 2020 and utilization rate is well above 90%. Also because of this 45-60 days lead time, Kossan ASP in the 2nd quarter is only increased by around 5%. Hence we can only see exponential increase in profit starting from quarter 3.

4) Kossan allocate 5% of profit to R&D activities to become more cost effective and launch new product to the market.

5) Price of nitrile butadiene rubber (NBR) normally mirror the price of crude oil, Kossan is able to passed the increase in cost to customer with the recovery of oil price currently. However it is also noted that out of 26mil tons of NBR needed, 70% goes to automotive tyre and the demand from automotive actually slowed down in current economic condition. So, NBR price will not increase too much.

6) Kossan recently purchased an industrial property  from CBIP for RM40mil which is just beside Kossan existing plant. Management mentioned that this will help Kossan to achieve synergy effect and able to set up the lines faster and with lower cost. Management target to setup 16 lines in the stated industrial property that can produced a total of 5bil gloves. This will be setup in stages with early stage 6 lines and later on another 10 lines. Working out the figure, Kossan is trying to produce the additional 1.875bil of gloves through the 6 lines asap to capitalize on current market condition. Not to forget Bidor expansion plan is ongoing as per planned.

7) Currently 90% of gloves produced is OEM, when asked about whether will management move towards OBM, they mentioned that glove is only taking a small portion of medical segment, hence their OEM identity is important so that they do not create conflict of interest with their customer. 80% of Kossan gloves sold are used in medical segment.

8) When asked if Kossan is interested to produce other PPE product like face mask, they mentioned that they already have facility to produce face mask (used in cleanroom) in China since 2010. They will only expand based on market need in normal situation as over-expansion is not Kossan strategy.

9) Kossan management is in the view that demand for gloves is not coming down soon, at least for the mid term (1-2 years). They also mentioned that they will raised asp for 20-30% in 2H 2020 as they would also have to ensure the long term partnership with their existing customer as they emphasize on sustainability in the long run.

10) Kossan received letter to be in the reserved list to be included in KLCI index just this morning.