The acquisition is well-aligned with Salcon’s strategy of growth and diversification, says ED Leong
by NUR HANANI AZMAN / graphic by MZUKRI MOHAMAD
SALCON Bhd’s subsidiary, Nusantara Jasakita Sdn Bhd, has entered into a share sale agreement to acquire a 51% stake in JR Engineering and Medical Technologies (M) Sdn Bhd for a purchase consideration of RM28.56 million.
The proposed acquisition comes with a profit guarantee of RM10 million per annum in the glove manufacturing company for the financial year Jan 1 to Dec 31 for years ending 2021 (FY21), FY22 and FY23.
Salcon ED Datuk Eddy Leong Kok Wah said upon completion of the transaction, Salcon will have immediate access to a trained labour force, existing customers and an immediate source of revenue while cutting down on lengthy product approval and registration processes.
“The acquisition is well-aligned with Salcon’s strategy of growth and diversification. We are confident the resulting significant synergies, economies of scale and enlarged market presence will strengthen the group’s growth profile and bring greater long-term value to our stakeholders.
“Although there are other manufacturers ramping up production capacity and new entrants venturing into this sector, we believe a structural change in usage of gloves will ensure there will be continued and strong demand in the market in the near to mid terms,” he said in a statement yesterday.
Salcon’s share price stood at two sen or 5.56% higher at 38 sen, with a market capitalisation of RM384.72 million.
With an annual production of over 336 million gloves from four single former production lines in their factory located in Zurah Industrial, Rasa, Hulu Selangor, JR Engineering is currently operating beyond its capacity.
In order to cater to the spike in demand in specific export markets, the group is targeting to increase and ramp up production capacity by an additional 12 lines to a total of 16 production lines within one year at an estimated capital expenditure of RM150 million, to be funded via internally generated funds and bank borrowings.
Once completed, this will bring the total production capacity of JR Engineering to three billion gloves per annum.
JR Engineering has already put in place the necessary approvals such as the Food and Drug Administration certification and the CE Marking Certification that will enable them to export to the US, European market and other countries.
JR Engineering chairman and MD Ganesan Subramaniam will continue to helm its operations, together with his management team.
Leong said Salcon looked forward to working with Ganesan, who brings with him an extensive wealth of industry experience, as well as his team of highly committed people, to take the business to the next level. “We will continue to support JR Engineering’s employees, customers, suppliers and key stakeholders towards business continuity and enabling positive synergies,” he added.
The shortage of gloves due to Covid-19 driven by surge in demand is expected to carry over into the next year.
A recent Bloomberg commentary expects Malaysia to churn out in excess of 240 billion units of gloves this calendar year, with demand already pushing production lines to maximum capacity up till mid-2021, compared to 182 billion glove pieces in 2019.
Lead times for delivery of orders have climbed from 30 days to 150 days and the demand is seemingly incessant.
Early September, Iconic Worldwide Bhd revealed it plans to invest some RM155.5 million to diversify into manufacturing and trading of personal protective equipment, disposable face masks and gloves.
The company, which is primarily involved in tourism and property development, plans to install and commission glove and disposable face mask production lines which are expected to yield a minimum production capacity of 3.1 billion pieces of gloves and 222.7 million pieces of face masks per annum.
Meanwhile, Mah Sing Group Bhd in October unveiled an ambitious diversification plan into the healthcare sector with its proposed move to venture into glove manufacturing business with a target to become one of the top five glove producers in Malaysia in due time.
The property developer’s new venture will be spearheaded by Mah Sing Healthcare Sdn Bhd, a wholly owned subsidiary of Mah Sing Plastics Industries Sdn Bhd, with plans to instal 12 production lines with a capacity to produce up to 3.68 billion pieces of gloves per annum, or 38,000 pieces of gloves per production line per hour within the year in Phase 1.