Malaysia Stock Analysis Report – KOSSAN (7153)

KOSSAN - A glove stock that is highly focused by the market.

KOSSAN was founded in 1979 to start in the manufacture of gloves. The business then expanded to include the Technical Rubber Product and the Cleanroom Product.

It offers natural rubber, latex and nitrile examination gloves for medical, sterility, food processing, home, clean rooms and some high-risk jobs such as mining.

It also provides molded rubber products for automobiles. These include shock absorbing bushings, hood profiles and sponges, seals, windshield rubber, window glass rubber and more. In addition, their rubber products are commonly used in the poultry, mining, general industry, engineering, construction and civil engineering industries.

It also provides engineered rubber products such as marine wagon fenders, bridge expansion joint systems, rubber bearing pads, rubber waterstops, compression seals, colored EPDM pellets (for sport running, playgrounds and sidewalks, etc.) and rubber Rollers (for plywood factories, paper printing and textile industries, etc.). They even offer EVA sheet and PU products such as rollers, precision products, tubing sleeves and shovel as well as mechanical manufacturing and installation.

KOSSAN products are exported to the United States, Asia and Europe. In terms of scale, KOSSAN is the 3rd in the field of Malaysia gloves.

Due to the advantages of Malaysian soil layer and climate, it is very suitable for planting rubber trees. 40% of the rubber grown in the world is in Malaysia, as Malaysia is called “Rubber Kingdom”.

Rubber is the main raw material for gloves, and Malaysia is having top-notch technology glove production in the world, thus glove industry in Malaysia is the world leader, with contribution of 60% world's supply.

The demand for gloves continues to rise every year, and growth rate is ranging from 8% to 10% year on year, especially demand for medical gloves field is very huge potential. As countries around the world are increasing medical awareness, and the third world countries are with great potential growth in the future on glove demand.

KOSSAN's products are mainly divided into four types: technical rubber products (TRP), gloves, clean room products and others. The products that contributed the most were from gloves (87.59%), the second was TRP (8.26%), the third was Cleanroom (3.78%), and the last was others (0.01%).

In FY 2018, the ratio of nitrile gloves to natural rubber gloves was 75:25. The highest Margin is TRP (15.1%), the second is gloves (12.8%), and the third is Cleanroom (4.5%), while other products are losing money.

KOSSAN's new plant (P16) has been fully operational in August 2018, with production increasing to 25 billion gloves per year, so the fourth quarter of fiscal year 2018 achieved a record high.

In addition, the new plant (P17) began full operation in November 2018 (P17 mainly produces nitrile gloves), and production increased to 26.5 billion gloves per year (an increase of 1.5 billion).

Besides that, the new plant (P18) and (P19) have started under construction, P18 is expected to contribute profit in April this year, FY2019 Q3 is fully operation; and P19 is expected to start contributing profit in August this year, FY2019 Q4 is fully operation. And these 2 plant will at least increasing production by 2.5 billion and 3 billion gloves respectively.

In other words, KOSSAN's total glove production in the FY2019 Q4 can reach 32 billion per year, with production increased by 21% at the end of this year. At the end of this year, HARTALALEA and TOPGLOVE increased production by 15% and 11% respectively. In contrast, KOSSAN will be the fastest growing glove company in this year!

Management is optimistic about the performance of gloves and TRP in 2019. The Malaysian Rubber Glove Manufacturers Association (MRGMA) estimates that the export volume in 2018 will reach 168 billion (150 million in 2017) and it is estimated that exports will reach 188 billion in 2019.

The next expansion plan will be concentrated in Bidor, Perak, which is still in its preliminary planning phase and is expected to begin in 2020 and be completed in eight years.

In addition, the group has approximately 56 arces and 98 arces of land reserves at Bestari Jaya and Kuala Langat to support the company's future expansion plans.

Despite rising raw material prices and fierce market competition, the company is still focusing on reducing costs, improving quality and improving operational efficiency. The management is confident that KOSSAN will continue to grow in 2019.

Louis Yap

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