KOSSAN RUBBER INDUSTRIES BHD

Target price: RM4.34

ANALYSTS are positive on the progress of automation and digitalisation of Kossan’s glove manufacturing process after returning from visiting its model plant (Plant 16).

The model plant is equipped with automated and computerised systems, which help to reduce reliance on workers, improve efficiencies and productivity, and ensure stable production as well as quality consistency.

Plant 16 has an annual production capacity of up to 3 billion pieces of gloves annually with eight production lines, which account for around 11% of the group’s total capacity, mainly for the production of the patented Low Derma nitrile glove.

“While this would result in cost savings and hence improve the group’s margin, we reckon it would take some time for the group to fully implement the new systems at its existing plants,” PublicInvest said.

The computerised control room is equipped to enable digital monitoring of all the production lines.

Kossan plans to duplicate this system at its existing plants. In addition, the group also has a control room to automate latex mixing process, which further reduces its manpow- er from 12 to 15 workers previously to only five 5 workers currently.

PublicInvest said Kossan has developed its own in-house patented “capture type” of layering machines, which is more advanced than the older version of “roller type” of stripping machines, as the former is capable of counting exactly the number of pieces of gloves it strips off from the glove formers.

Apart from that, the group is in the midst of developing its in-house packaging machine, which is currently a manual process, with the aim to remove two third of the number of workers required for packaging, which is the most labour intensive area in the entire gloves production process.

As a result of the digitalisation and automation, the model plant has managed to reduce reliance on workers to 2.5 workers per million pieces of gloves as compared to 3 workers per million pieces of gloves in other existing plants (including all staff).

PublicInvest said the group aimed to further reduce the number to 1.2 workers per million pieces of gloves for the model plant once it automated its packaging process by next year.

Moving forward, the group’s performance is expected to be supported by Plant 18 (2.5 billion pieces annually), Plant 19 (3 billion pieces annually) and the expansion in Bidor (45 billion pieces annually).

The research house has maintained its earnings estimates and “neutral” view on the stock with an unchanged target price of RM4.34.