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ILB EXPANDING OPERATIONS INTO FOUR MORE CHINESE CITIES

STAR BIZ, FRIDAY, 21 APRIL 2006

By: Yeow Pooi Ling

PETALING JAYA: Integrated Logistics Bhd (ILB) plans to expand into four more Chinese cities after having secured a Class A licence in the fourth quarter last year, said chief executive officer Tee Tuan Sem. The licence, given to 70% subsidiary Shun Hing Logistics Co Ltd of Hong Kong, allows the group to operate in the mainland without geographical restrictions as well as provide other logistics services like freight forwarding and haulage. 

Shun Hing now has warehouses in Shenzhen's Futian tax-exempt zone which borders Hong Kong and in Shanghai's Waigaoqiao tax-exempt zone in the east of China. It intends to move into Guangzhou, Suzhou, Hangzhou and Dalian.

With the expansion, the company could support export and service companies operating at the ports of the four cities, Tee said after the company's AGM yesterday. “Within the next three to six months, we should see something,” he said, adding that discussions were under way. In view of China's growth, ILB was expected to achieve double-digit growth in revenue and net profit in the current financial year ending Dec 31, he added. Last year, net profit jumped 30.7% to RM18.3mil while sales rose 6.8% to RM190.5mil.

 

LEFT: Tee Tuan Sem holding up a copy of ILB's annual report after the company's AGM on Thursday

Executive director and chief financial officer T. H. Goh said earnings contribution from China would likely increase to between 70% and 75% this year, from 65% in 2005. Last year, operations in China contributed about 35% of revenue. He said the expansion into the four cities would not require large capital expenditure (capex) because ILB was merely “extending existing services” to those cities, which involved the opening of branch offices. Heavy capex would usually meant the setting up of warehouses, he said, adding that there was no such plan yet as the company was still evaluating the needs of the markets in those cities. Furthermore, it was not necessary to build warehouses because ILB could also lease from third parties or do on-site logistics for customers, Goh said.

Tee said building warehouses would require more time as buying land in China could take six months to one year. “Good locations are also not easy to come by,” he said, adding that it cost an average US$20mil to US$30mil to set up a warehouse in China. “We have enough cashflow to handle such an investment (if the need arises),” he said.

On the impact of the higher diesel prices on ILB's bottom line, Tee said it was insignificant, as the haulage division did not comprise the bulk of the company's earnings.

He said the haulage division was making losses owing to stiff competition and price cutting in the industry. “Haulage is one of the important parts of the supply chain. Hence, as a fully integrated logistic company, we have no choice but to be in the (haulage) business,” he said. However, ILB did not plan to expand the division, he said.