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This article first appeared in The Edge Financial Daily, on December 28, 2015.

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KUALA LUMPUR: Integrated logistics provider Xin Hwa Holdings Bhd expects to grow its revenue and net profit by 10% year-on-year (y-o-y) for the financial year ending Dec 31, 2016 (FY16), driven by growth in its land-transportation and warehousing businesses.

In FY14, Xin Hwa reported a 13% y-o-y growth in net profit to RM15.86 million, in line with a 13% climb in revenue to RM110.63 million from the previous year.

For the nine months ended Sept 30, 2015, the group posted a net profit of RM12.11 million on revenue of RM82.23 million. There were no comparative figures for the preceding year as the group was listed on June 30.

Xin Hwa managing director Ng Aik Chuan said 90% of the group’s revenue was contributed by the land-transportation segment.

“For our future plans, we are focusing on our land-transportation business. We have two sectors to expand — the cargo project and the internal-port operations,” he told The Edge Financial Daily in an interview.

Under its cargo-project business, the group offers logistics solutions for the transportation of materials and machinery for large-scale projects. Xin Hwa is currently involved in the mass rapid transit (MRT) project and some oil and gas (O&G) projects.

“For the MRT project, most of the project has been completed, which means the delivery work is slowing down. Now we’re waiting for the next package to be awarded,” said Ng.

Meanwhile, the group has just commenced providing logistics solutions for some O&G projects. The group has recently been awarded two contracts by Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), worth a total value of RM1.8 million, spread over 12 months starting Aug 3.

The contracts entail the provision of logistics solutions for MMHE, for the Refinery and Petrochemical Integrated Development project in Pengerang, Johor.

“We have just started to deliver for the project. Next year, the contribution will be bigger. Under the MMHE contracts, we will be delivering the machinery and materials, transporting them from the port to MMHE’s factory and then to the project site,” said Ng.

He added that Xin Hwa is also tendering for a few projects relating to the O&G segment, but said that nothing is concrete yet.

The group is also in the midst of setting up a branch office in Kemaman, Terengganu, to capitalise on the O&G industry in the East Coast.

For its internal-port operations, Xin Hwa chief financial officer Kok Poh Fui said the group is looking to expand into other countries in the Asean region.

“Xin Hwa is the newest Malaysian land-transport company to provide internal-port operations for three ports, namely the Johor Port, Port of Tanjung Pelepas (PTP) and Penang Port.

“We are quite confident in managing the ports. It’s not an easy job as the ports operate around the clock. Therefore, we intend to expand our internal-port operations to other countries in Asean, including Singapore, Thailand and Cambodia,” he said.

As the group works on expanding its land-transportation segment, Kok said the warehousing business has to expand concurrently, in order to cater for the extra work from its transportation business.

Xin Hwa recently completed its latest warehouse in Pasir Gudang, Johor, adding another 220,000 sq ft of storage space, bringing its total capacity to 444,600 sq ft.

The group has recently been granted the bonded-warehouse licence by the Royal Malaysian Customs for the Pasir Gudang warehouse, which allows importers to store their goods without going through customs clearance.

Kok said bonded warehouses are in high demand, especially due to the implementation of the goods and services tax earlier this year. He expects the warehouse to contribute RM500,000 per month in revenue to the group from the first quarter of 2016.

Following the completion of its new warehouse, Xin Hwa will be setting up a new warehouse in PTP, which will be larger than the Pasir Gudang warehouse.

“We are looking to set up another warehouse in PTP. The new warehouse will cost RM30 million, measuring 300,000 sq ft, bigger than the Pasir Gudang warehouse’s 220,000 sq ft of space,” said Ng.

With the new warehouses, the group intends to double its revenue contribution from the warehousing segment to 20% of its total top line in the future.

Meanwhile, Xin Hwa is looking at expanding inorganically and is eyeing to acquire new synergistic businesses.

“Before we got listed, we were only pushing for organic growth. Since we are listed now, we are considering mergers and acquisitions if there are any candidates that can create synergy,” said Kok.

He added that Xin Hwa is considering companies in the logistics industry in different locations and different kinds of logistics-service providers, like those with chemical or O&G tankers.

Kok said the group is also considering acquiring businesses involved in parcel delivery, as e-commerce gains traction.

“We are looking at companies in the same industry, but in different locations and also different sectors in logistics. For example, certain logistics companies that work with chemical tankers or O&G tankers.

“We are also looking into different channels such as parcel delivery, as conventional business models are shifting towards e-commerce. Ultimately, we will need a parcel-delivery business,” said Kok.

Since its listing on June 30, the counter has appreciated 57% from its initial public offering price of 70 sen, outperforming the FBM KLCI’s 4% decline during the same period. Last Wednesday, Xin Hwa shares closed unchanged at 97 sen, with a market capitalisation of RM174.6 million.

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