• Overview. 4QFY20 revenue increased to RM1.3bn (+126% yoy), while net profit jumped to RM542.5m (789% yoy) mainly due to higher ASPs (>120% yoy) and sales volume (>13% yoy). On qoq basis, net profit improved by 55.6% mainly contributed by higher ASP (>50% qoq), mitigating the slight decline in sales volume due to Covid-19 temporary factory shutdown and delays in shipping caused by port congestion as well as shortage of containers. Overall, profit margin improved to 41.5% (+7.8 ppts qoq, +31 ppts yoy) on better production efficiency and economies of scale.

• Key highlights. Kossan’s capacity have been fully taken up until end-2021. Spot order accounts for 10-15% of total capacity. ASPs have seen increase of c.>50% qoq in 4Q and management expect ASP could sustain at higher level until 3Q2021. Plant expansion remains on track with new Plant 20 already commissioned 2 lines and another 3 lines will start in the next couple of months. Kossan total installed capacity will increase from current 32bn to 42.5bn (+33%) by end-2022. (table 3).

• Against estimates: Inline. FY20 PBT of RM1444.6m (+423% yoy), made up 101% and 105% of our and consensus full year forecast. Net profit growth of 384% yoy was slightly impacted by higher effective tax rate of 24.4% (6.8 ppts).

• Dividend. Second interim (3 sen) and special DPS (8 sen) was declared during the quarter. A total DPS of 14 sen for FYE20, translating into DY of 3.6%.

• Outlook. We expect Kossan to record sequentially stellar performance in the upcoming two quarters on the back of higher demand and ASPs. However, with the roll-out of vaccines and rising competition, we are taking a more prudent approach expecting ASPs hike to peak in 1H2021 and gradually decline from 2H2021 onwards.

• BUY call. Maintain our forecast at this juncture, but there could be a potential upside to our forecast on the back of continuing higher ASP than expected. Our TP remain RM5.20, implying a PER of 18x pegged on FY22f EPS. Given upside of 32% based on our TP – coupled with a 59% decline in share price since its peak in Aug – we have a BUY call for Kossan. Despite weaker market sentiment due to vaccines development, we believe the stock remains attractive trading at PER of 5.5x FY21F and 13.6x FY22F.

Source: BIMB Securities Research - 17 Feb 2021