KUALA LUMPUR: Integrated logistics provider Xin Hwa Holdings Bhd made an impressive debut on the Main Market of Bursa Malaysia yesterday as its shares went up as much as 28.6% to peak at 90 sen. Its counter was the most actively traded across the board.

Xin Hwa opened for trading at 79 sen — a premium of nine sen or 13.6% to their initial public offering (IPO) price of 70 sen. It closed at 86 sen, still up 16 sen or 22.9%, after some 76.3 million shares changed hands, with a market capitalisation of RM154.8 million.

Xin Hwa managing director Ng Aik Chuan told reporters at the listing ceremony that the group is optimistic about maintaining its double-digit net profit growth even as its five-year tax allowance granted by the Malaysian Investment Development Authority will expire on March 17 next year.

"This [double-digit growth in net profit] is our track record and our internal benchmark. Hence, we are hoping to register at least 10% growth in the bottom line going forward," said Ng. 

In a note yesterday, BIMB Research said the expiration of the tax allowance will see Xin Hwa’s tax rate go up to 25% from the 10% to 15% that it had been enjoying for financial year 2012 (FY12) to FY15, which the research house opined could squeeze the company’s net profit growth.

In response to this, Ng said the group has plans, including regional expansion and cost control measures, to address the issue. 

"Our key strategy is to grow the top line without compromising our margins," he said. 

On Xin Hwa’s regional expansion, Ng said the company will start from Singapore and is eyeing to double the top line from the operation there to 20% from 10% currently. 

"Singapore remains a lucrative market for us, as business operators are looking for cheaper logistics and warehousing amid the depressed economic situation.

"As a southern integrated logistics firm, we are always looking at expanding our footprint in Singapore. We have spent some RM4.75 million out of the total IPO proceeds to construct a new warehouse in Pasir Gudang, Johor to capture rising demand," he said. 

"We expect a high utilisation rate of our new warehouse considering the demand from Singapore remains robust," said Ng. Currently, the untilisation rate of Xin Hwa's warehouse stands at about 60%.

On the domestic front, Ng said the company intends to expand its footprint to central and northern Peninsular Malaysia. 

"We will also set up an office at Kemaman, Terengganu, to cater for the oil and gas sector," Ng said. 

Regionally, Xin Hwa plans to expand via partnerships or joint ventures (JVs) to diversify its customer base and business. Ng said the group is now in preliminary talks about possible JVs with potential partners, but noted that nothing solid has come out of the talks yet.

Meanwhile, he said the group will purchase old trucks and refurbish them instead of buying new ones, which will allow the group to save 30% to 40% in cost. 

"We don't buy new trucks. We buy old trucks and refurbish and maintain them well. So our trucks’ cost is very low compared to competitors," he said. 

The group currently operates 435 prime movers, 703 trailers and 35 trucks. It will spend RM11.36 million of its IPO proceeds to acquire 101 new vehicles — all used models, according to Ng — to strengthen its role in the road transport business. 

This article first appeared in The Edge Financial Daily, on July 1, 2015.