Kossan on expansion trail

  • Business
  • Monday, 27 Aug 2007

Kossan Rubber Industries Bhd will allocate about RM50mil in capital expenditure (capex) over the next three years as part of the group's aggressive expansion plan. 

Managing director Lim Kuang Sia said the capex was targeted at increasing the production capacity of Kossan's flagship products – powder-free gloves and surgical gloves – as well as fund new acquisitions and penetrate new export markets. 

Kossan is the world's third largest glove manufacturer with about 7% global market share and an annual production capacity of 8.5 billion pieces.  

Lim told StarBiz that the group aimed to increase its global market share to over 10% within the next two to three years. 

“At the same time, we will continue to place importance on our business, revenue and earnings stability above short-term profitability,” he added. 

Lim Kuang Sia

According to Lim, Kossan's capex has been fairly stable for the past few years. “It is our policy to stagger the capex to ensure our balance sheet remains robust and is not stretched,” he said.  

In the global market, Kossan has a strong niche in the premium medical gloves segment and is a direct proxy to the growing healthcare sector. 

Lim said: “Our strategy is to focus on the medical glove segment where there is less price competition. Our technical ability will also be difficult to replicate.” 

Kossan is currently the world's largest premium medical glove maker and a major original equipment manufacturer (OEM) for global multinational healthcare providers. 

Lim said Kossan had fulfilled a substantial percentage of the requirements of multinational companies, given its consistent capacity expansion programme. This has translated into a steady income stream for the group. 

Kossan has also completed its 2007 expansion plans to commission 13 new production lines with capacity exceeding 1.5 billion pieces per annum. 

“We have the highest production efficiency since inception compared with our peers. The utilisation rate is always 95% and above,” Lim said, adding that the group's 88 production lines were practically running at full capacity. 

Lim said the latest additional capacity would boost Kossan's position to cater to the increasing demand from both developed and emerging markets such as China and India.  

He said Kossan's exports of powder-free gloves and surgical gloves to China had doubled over the past two years. “One should not underestimate China's glove consumption, particularly with the strong growth in its healthcare expenditure,” he added. 

China's medical devices market, including those made of rubber, is estimated at US$7bil, with an annual growth of 15% over the last three years.  

On potential mergers and acquisitions (M&As) this year, Lim said: “We are more inclined towards acquisitions than mergers.” 

Lim said Kossan planned to acquire suitable outfits in Malaysia and overseas as part of the group's growth strategy. 

Kossan, which harbours plans to run a factory in Vietnam's Ho Chi Minh City by year-end, may also venture into Indonesia to tap the cheap labour environment in both countries. 

“It will be a bonus if our acquisition efforts materialise this year,” Lim said. 

Nevertheless, Kossan is still able to achieve commendable growth based on its aggressive expansion exercise this year without the M&As. 

Lim also expects another round of consolidation for the rubber glove industry in Malaysia and the region. 

“Consolidation will be triggered particularly if operators' production costs continue to escalate further,” he said. 

He noted that the bigger players with efficient management and cost control measures would remain winners.  

“It is definitely the volume game in the rubber glove industry,” he added.  

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