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ILB Poised to Ride China Boom

THEEDGE MALAYSIA, 25 OCTOBER 2004

By: JIMMY YEOW

Business success in China, one of the most attractive destinations for Malaysian investors, is not guaranteed. Many Malaysian companies, which went there in droves in the 1990s, ended up failing just after a few years of operation.

Integrated Logistics Berhad (ILB) is not one of these companies. Making its foray into China in 1995, it not only tasted success but also emerged as one of the top three foreign logistics player in the country as well as the largest bonded warehouse operator in Malaysia.

"Many people went to China in the mid-1990s and came out with nothing. We ventured into China 10 years ago, shortly after our listing on the back of our financial ability and record in handling multinational corporations in Malaysia," says ILB chief executive officer Tee Tuan Sem.

"Why have many people failed and we've succeeded? Of course, there are many people who say that they were not as lucky but then again, who would have called me lucky when ILB was badly hit by the Asian financial crisis which led to business slowdown?"

Tee believes that the main ingredient to ILB's success was its ability to remain focused on its core competencies and a strong belief in the business model. He stresses that it also boils down to management plus the need for perseverance in the wake of adversity.

Today, ILB's clients include some of the largest multinational corporations and companies involved in oil and gas, electrical and electronics, IT, home furnishing and pharmaceuticals.

"We have 30 years' experience in handling multinational corporations and manufacturers in Malaysia and we have been in the Chinese market for the past 10 years. ILB is now well positioned to ride the China boom.

"Our China operations will be contributing more to our bottom line from FY2004 from 50:50 last year on the back of faster cargo throughput, demand, better yields and more available warehousing space this year." Tee says in recent interview.

Starting with basic logistics services when it first stepped into China, ILB has now moved up the value chain by offering third-party logistics, solutions and supply chain management to meet the growing sophistication and needs of global manufacturers and suppliers.

Tee says ILB is undertaking a RM100 million expansion plan in China with the building of two new warehouses to meet the strong demand for space from global manufacturers. To date, the company had invested about RM250 million in its China operations.

The additional warehouses in Shenzhen and Shanghai will almost double its space to 164,000 sq m by the first quarter of 2005 from the present 92,000 sq m. ILB will expand its operations to Dalian, Tianjin, Suzhou and Guangzhou in 2005 and 2006.

Tee says China's logistics sector will continue to grow at a rapid rate of 25% yearly, driven by the strong inflow of foreign direct investment and its entry as a member of the World Trade Organisation.

The China market is currently fragmented with 16,000 registered logistics players. None have more than a 2% market share. "This offers enormous potential to gain market share," he says.

ILB shares have climbed steadily over the past 10 months on the back of improved earnings. Net profit for the first six months ended June 30, 2004, jumped 233.9% to RM5.81 million from RM1.74 million a year ago.

Tee says ILB's Malaysian operations will continue to be big despite the growing importance of the China businesses. The company operates 241,000 sq m in the Philippines. The company's network also includes Indonesia, Hong Kong, Japan, Singapore and Thailand.