Luster in a RM1 bil contract to build glove production lines in the US

MAIN Market-listed Luster Industries Bhd has secured “a more than RM1 bil” contract in its maiden foray into North America as a provider of engineering, procurement, construction and commissioning (EPCC) services as well as technology solutions for glove production lines.

The company is among the first Malaysian companies to offer EPCC works for a glove manufacturing plant in the US.

This follows the sealing of an agreement between Glovconcept Sdn Bhd which is a 60% owned subsidiary of Glovmaster Sdn Bhd with American Nitrile LLC to provide EPCC services as well as glove technology solutions for up to 12 glove production lines and a further forecasted 72 glove production lines in the US.

The RM1 bil value is derived from a total forecast of 84 lines. Luster’s three main business segments are manufacturing, property development and construction, and gaming and leisure..

According to a Bursa Malaysia filing, Glovconcept will undertake the designing, building and delivery of a glove manufacturing factory on a turnkey basis with glove output of not less than 38,000 to 40,000 per line per hour.

Meanwhile, American Nitrile is responsible for the sourcing and procurement of the plant, machineries and infrastructure such as electricity and water, raw materials, workers and utility.

The glove production facility will be located at 3500 Southwest Blvd / Grove City in Ohio.

Glovmaster is a 56%-owned subsidiary of Luster with the remaining equity interest held by Fortune Tac Sdn Bhd, a company that specialises in the glove business from the setting up to operating glove production lines.

“The group has taken the opportunity to tap into the US market, following the rising interest in the country to reduce its reliance on Asia’s personal protective equipment (PPE), including masks, gloves and ventilators,” noted Luster industries’ deputy managing director Liang Wooi Gee “Currently, about 68% of the world’s gloves supply come from Malaysia.”

This is in line with US President Joe Biden’s administration’s direction to reduce the dependency and reliance on imports of PPE, according to Luster.

Biden has signed an executive order in late February that will result in a 100-day review of supply chains by the executive branch. This is following reports of PPE shortages that have caused doctors to reuse and recycle some of these PPE in the battle against the COVID-19 pandemic.

The estimated cost to be borne by American Nitrile in building the glove production plant is around US$3.6 mil (RM14.9 mil) per line.

“A minimum of 12 production lines shall be placed into two separate orders which works out to RM178.8 mil in value,” noted Luster. “American Nitrile aspires to purchase from Glovconcept up to 72 additional production lines within the first 24 months from the date of the agreement.”

Upon commencement of the production lines, Glovconcept shall be entitled to a percentage of the sale proceeds generated by all the production lines with a minimum entitlement of US$2 mil per annum and capped at US$50 mil for every 12 lines.

“Once all the 84 production lines are running at full capacity, Luster could see earnings of up to US$350 mil coming from the sales proceeds of gloves by American Nitrile,” added the company.

At the close of today’s trading Luster was down 1 sen or 3,92% at 24.5 sen with 292.75 million shares traded (today’s most active counter), thus valuing the company at RM709 mil. – April 12, 2021

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