Kossan officially launched its new patented Low Derma Technology yesterday. Investment of RM2m into this new technology has enabled the Group to produce chemical and accelerator free nitrile glove products. By replacing sulfur and accelerators used in conventional vulcunisation process, to mitigate any chemical allergies classified as Type IV, and to improve other features of nitrile gloves such as tensile strength, thermal stability and durability. With this new glove feature, further enhances Kossan’s reputation as an innovative glove maker. Our Outperform call is reaffirmed, with an unchanged target price of RM8.50, based on our DCF valuation.

Low Derma Technology was innovated by Kossan through extensive research on its manufacturing process and chemical components. The group spent about RM2m capex on its R&D and patent. The new technology is a non-sulfur vulcanisation formulation which replaces the sulfur and accelerators used in the conventional process of natural rubber and nitrile rubber latex gloves, to other unsaturated carboxylic acids. Its Low Derma Technology product, branded CHEMAX® 7th Sense® is certified by United States Food & Drug Administration (US FDA). To receive this certification, the product was tested using a Modified Human Draize Test with sample size of 200 non-sensitised adults. The results were favourable, showing low potential of chemical allergy with containing low levels of chemical accelerator residue. With this new glove feature, we are optimistic on Kossan’s growth prospects going forward with the new differentiation of its products.

Type IV allergy is mainly caused by residual accelerators. It is a type of delayed hypersensitivity, as the reaction takes between 6 to 48 hours to develop. Contact dermatitis is one of the type IV hypersensitivities resulting in symptoms such as redness, small blisters, crusty and scale appearance. According to the Finnish Institute of Occupational Health (FIOH), the most common cause of occupational allergic contact dermatitis is caused by rubber chemicals (Figure 1). Other trends show that 90% of glove-related allergic reactions are due to chemical accelerators used in the manufacture of gloves.

Maintain Outperform with our TP of RM8.50. We continue to like Kossan as i) stable performance which resulted gradually uptick in net margins despite prevailing price competition and cost pressures, ii) continuous improvement in productivity and efficiencies, and iii) self-positioning strategy under a competitive environment, by introducing unique gloves which command better margins.

Source: PublicInvest Research - 2 Sep 2016