Glove demand has prompted Kossan Rubber Industries Bhd’s recent acquisition of over 800 acres of land in Bidor, Perak has caught analysts by surprise. However, the founder and CEO, Tan Sri Lim Kuang Sia, views it as a necessary step in light of the booming global demand for gloves.

The Bidor site will serve as Kossan’s new base and will include modern, integrated glove manufacturing facilities. The project is expected to take six to eight years to complete and cost approximately RM1.5 billion.

Kossan acquired the two vacant plots of land from Perak State Development Corp for RM82.42 million in March. Lim stated that the group does not believe in high gearing and plans to dispose of two industrial land parcels in Selangor for RM200 million, which will give the company an extra cash flow boost.

The Bidor land is large enough to accommodate Kossan’s manufacturing processes and was a suitable choice due to its location near utilities and alongside the highway. The acquisition is not just an expansion of the company’s capacity but also a chance to improve efficiency, quality, and automation while overcoming space constraints in old factories.

Lim explained that the Bidor site will allow Kossan to specialize its plants, reducing downtime and improving efficiency and output. The company also plans to set up a training department to reduce its reliance on foreign workers.

Kossan is expecting a 10% increase in output for FY18 with the help of Plant 16 and Plant 17, which are expected to come online soon. Plant 17 will begin operations in Q3 of this year, while Plant 18 will be completed by Q3 of next year.

Kossan exports a range of products, including technical rubber products and latex disposable gloves, to over 190 countries, with the majority going to the US, the eurozone, Japan, and South Korea. Lim has confidence that the company will continue to grow with the expanding global demand for gloves and the replacement of plastic gloves with latex gloves and increasing health and safety awareness.

In FY17, Kossan had a net profit of RM182.06 million and revenue of RM1.96 billion, representing a 9% YoY increase and 17.4% growth from FY16, respectively. The company’s stock price fell 0.45% to RM6.64 last Friday with a market capitalization of RM4.25 billion. Over the past 12 months, the stock has risen 19.66% from RM5.55 on May 3, 2017.

Source: The Edge Markets