PETALING JAYA: The recent contract secured by Luster Industries Bhd to build glove production lines in Ohio in the United States has been a bit of a head-scratcher, judging by the fact that the company is a relatively new entrant into the sector.
Only about six months after announcing its venture into producing rubber gloves, the company has secured an engineering, procurement, construction and commissioning contract for rubber glove production lines.
While Luster Industries is experienced in the manufacturing sector, an analyst said that producing rubber gloves and building the production lines are two different skill sets: both of which are not yet the group’s core expertise.
The group’s manufacturing background is plastic parts, hygiene and pest control products and doing precision engineering work and manufacturing of die-casting components.
Luster Industries formed Glovmaster Sdn Bhd in a joint-venture with Fortune Tac Sdn Bhd on Oct 22 last year, where the former holds 56%.
Fortune Tac, however, has given a profit guarantee to Luster and has said it could contribute the business know how, technical aspects, skills and technologies of the gloves business.
Glovconcept Sdn Bhd, the company that entered into the agreement with American Nitrile LLC, was incorporated on Feb 3 with a current issued share capital of RM1,000.
Glovmaster holds 60% in Glovconcept.
The contract is for building 12 production lines in the United States, which is roughly estimated to cost US$43.4mil (RM179mil), including the chlorination and line infrastructures.Luster Industries’ filing with Bursa Malaysia on Monday also stated that American Nitrile “aspires to purchase from Glovconcept up to 72 glove production lines within the first 24 months after the date of the agreement” provided that the agreement is non-binding.
Assuming that Luster Industries has all the necessary expertise and capacity to take on the contract, there seems to be a lack of clarity on American Nitrile.
It may seem that the company is ambitious in its aspiration to purchase up to 72 production lines in two years, being a company that was just set up on Jan 4 with a share capital of US$100,000.
For starters, the business address of the Delaware-incorporated company points towards the store of a shipping company known as Pak Mail, which offers shipping, freight and packing services as well as mailbox rental.
While its director Jacob Block has almost no online presence, Google searches led to the LinkedIn profile of a Jacob Block, who stated that he is the chief executive officer of American Nitrile since July last year and is still the CEO of Block Medical Supply since March last year: the time when Covid-19 peaked, which led to economic shutdowns globally.
Interestingly, he was a public relations intern at a brand management company just seven years ago.
A check on the United States Patent and Trademark Office portal showed that American Nitrile had trademark applications for its name and symbol made on March 4 and March 8 respectively.
While questions remain over the nature of the contract in an environment where rubber glove demand still outstrips the supply, it will be a plus for Luster Industries, which will allow it to receive a stable flow of income over several years.
Glovconcept is entitled to a percentage of the sales proceeds from the 12 production lines starting with 5% in the first year and gradually reducing to 1% starting from the fifth year.
This allows the company to receive a minimum of US$2mil from American Nitrile per year and the entitlement will cease once Glovconcept receives an aggregate total sum of US$50mil.
This would go along well with Luster Industries diversification into the glove manufacturing business.
Last month, the Malaysian Rubber Glove Manufacturers Association projected that the global supply of rubber gloves will reach 420 billion pieces this year compared with a demand of 500 billion.
It is notable that Luster Industries conducted two private placements in October and December last year where it raised RM26.32mil and RM60.27mil respectively.
The proceeds for the first placement was for its general working capital while RM50mil from the second placement was for Luster Industries’ investment into the glove business.
The group had, on Feb 26, entered into a sales and purchase agreement to acquire a 4,013 sq m leasehold industrial land in Banting, Selangor for RM3.85mil for its glove manufacturing plant.
It previously said that with the assistance of its partner, it has managed to start the trading activities for the gloves and started to place orders for the raw materials for the glove manufacturing.
They have also commenced marketing activities and expected to close certain sales contracts by the first quarter of 2021.
The manufacturing operation is projected to kick off early in the third quarter this year.
Luster Industries shed 2.5 sen or 10.2% to 22 sen in yesterday’s trade with 222.79 million shares done.