Kim Hin's production to go up 75% on acquisition

KUCHING: Ceramic tile maker Kim Hin Industry Bhd’s production capacity in Peninsular Malaysia will be raised by some 75% to seven million sq m of tiles a year on completion of the proposed acquisition of tile-maker Johan Ceramics Bhd.

Kuching-based Kim Hin would pay RM28mil for Johan Ceramics’ manufacturing facilities and assets, including trademark assignment, in Seremban, Negri Sembilan under a sale and purchase agreement signed on Dec 17.

Lembaga Tabung Angkatan Tentera-controlled Boustead Holdings Bhd owns 98% of Petaling Jaya-based Johan Ceramics.

Johan Ceramics owns two factories involved in the manufacturing and sale of glazed ceramic wall and floor tiles, and has an annual production capacity of three million sq m. The plants stopped operations about three months ago.

Kim Hin’s Seremban plant has an installed capacity of four million sq m per annum. Its production was boosted following an investment of some RM30mil in a second sophisticated production line last year.

The proposed Johan Ceramics buy would be Kim Hin’s second major acquisition in less than two years.The tile manufacturer earlier paid about RM22.7mil in purchasing United Kingdom-based Norcros Industry Pty Ltd, one of the major importers and distributors of Johnson Tiles in Australia, and properties owned by Johnson Tiles Pty Ltd.

Kim Hin executive chairman Chua Seng Huat expected the acquisition of Johan Ceramics to be completed in three months.

“We will then deploy workers to restart the factories, and expect the plants to be up and running again in July next year.

“We need to upgrade the plants and plan to buy and install new machinery in 2017,” he told StarBiz.

The acquisition of the Johan Ceramics plants would see Kim Hin expanding production capacity in Seremban and better position the company in the Peninsular Malaysia market while enhancing the it’s flexibility in the production planning of various product ranges.

Chua said the Seremban unit might invest in a third new production line next year to gradually build up its capacity to meet with any shortfall in reduced production volumes by the main Kuching plant.

From current eight million sq m per annum production, the Kuching plant would gradually scale down to five million sq m per annum in the next three years.

One of the reasons to scale down the Kuching plant operation is due to the high price of liquified petroleum gas (LPG) it consumes compared to the subsidised piped natural gas used by industries in the peninsula.

The Kuching plant consumes an average of 800 tonnes of LPG a month.

With LPG price dropping to around RM2.40 per kg currently from RM3.50 per kg a year ago in tandem with the global plunge in crude oil price, this would mean a cost saving of some RM10mil a year for the plant, thus boosting the company’s earnings. The fuel expenditure made up about 35% of the plant’s production costs.

The company also operates a plant in Shanghai, China with an annual production capacity of two million sq m.

Chua said while sales in the domestic market had somewhat slowed down, “we are doing very well in the export markets due to the strong US dollar (Kim Hin’s overseas sales are denominated inUS dollars).”

Kim Hin, among the country’s top three ceramic tile manufacturers, took over the production of Johnson Tiles, a premium product.

These tiles are produced by the Kuching, Seremban and Shanghai plants for mainly the overseas markets, like the Middle East.

Kim Hin tiles, on the other hand, are marketed under the Kimgres brand. With strong sales, Chua expects the company’s revenue to be higher, at RM340mil, against 2014’s RM313.4mil and RM261mil in 2013. In the first nine months, the company’s turnover jumped to RM269.7mil from RM224.4mil in the same period last year while net profit climbed to RM31.7mil from RM20.9mil.