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Friday, June 19, 2015

Kossan lays out five-year expansion plan

KUALA LUMPUR: Kossan Rubber Industries Bhd ( Financial Dashboard) has laid out a five-year expansion plan that includes spending RM600 million in capital expenditure (capex) to double the glove maker’s annual production output from 22 billion pieces of gloves currently.

Kossan managing director Datuk Lim Kuang Sia said the group plans to build manufacturing plants in Meru, where it has land totalling 38 acres (15.37ha), and in Batang Berjuntai, Selangor where it owns 56 acres.

The group currently has 15 plants which are operating at 85% capacity.

“We plan to double our production output within the next five years,” Lim told reporters after the group’s annual general meeting yesterday.

He said automation will play a significant role in the group’s expansion plans, with RM50 million of the total RM600 million capex allocated for this purpose.

“The automation will effect all levels of the organisation, from production output to administrative and marketing functions. Therefore, there will be a transitional period involved,” said Lim.

“Automation is something to improve the consistency of quality of our products as it will be less labour intensive, which in turn helps in cutting downtime of our processes. It also eliminates the need for us to hire foreign labour,” he said, adding that Kossan’s automation process will focus on quality improvement of its products, thereby reducing defects caused by human errors.

The group’s current product mix ratio between nitrile gloves and natural rubber gloves stands at 66:34.

“We are looking at bringing this ratio to 80:20 as part of our five-year plan, as our new plants will be focused on the production of nitrile gloves. However, we do not intend to discontinue the natural rubber gloves completely as both our products complement each other [and have their respective customer demand],” said Lim.

On whether the group would consider mergers and acquisitions (M&A), Lim said it depends on the synergies that would be reaped.

“For us, innovation and technology is key, therefore we will only consider M&A activities if they are able to add value and be synergistic with us in terms of these two factors,” he said.

Kossan (fundamental: 2.1; valuation: 0.5) shares closed up 1.8% to RM6.80 yesterday, with a market capitalisation of RM4.35 billion.

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