Five outlets to be launched in the country to drive salesKUCHING: Ceramic tile manufacturer Kim Hin Industry Bhd plans to open retail outlets throughout the country to distribute Johnson Tiles – its newly acquired Australian brand.
Executive chairman Chua Seng Huat said five brand outlets in major cities in Peninsular Malaysia, Sarawak and Sabah are expected to be launched next year to drive sales of the tiles.
Kim Hin has taken over the production of Johnson Tiles, with its Kuching, Seremban and Shanghai plants expected to produce three million square m of Johnson Tiles of various types and sizes this year for the domestic and overseas markets.
As a premium product, Johnson Tiles commands a 10% higher selling price compared with Kim Hin tiles marketed under the Kimgres brand.
Kim Hin acquired United Kingdom-based Norcros Industry Pty Ltd, one of the major importers and distributors of Johnson Tiles in Australia, for some RM6.9mil last year.
Norcros had been operating in Australia for 50 years via retail outlets in major cities.
Kim Hin, which is among Malaysia’s top-three ceramic tile makers with a market share of around 20%, also bought the property owned by Norcros’ wholly owned unit, Johnson Tiles Pty Ltd, in Victoria for RM15.75mil.
The Australian firm does not have any manufacturing facilities.
“Johnson Tiles is a very strong brand in Australia. Our Malaysian and China productions currently cater mainly to the Australian market,” Chua told StarBiz.
Kim Hin is expanding to new regional markets like Vietnam, where it has set up retail outlets for Johnson Tiles and Kimgres.
Chua said sales from Johnson Tiles products had contributed the bulk of Kim Hin’s group revenue of RM89.5mil in the second quarter ended June 30, 2015 (Q2’15), up from RM78mil in Q2’14.
Group net profit for the quarter under review stood at RM10.6mil against RM15.5mil (inclusive of RM5.9mil from negative goodwill arising from the acquisition of Norcros) in the previous corresponding quarter.
The Kim Hin Kuching and Seremban plants have an installed production capacity of eight million sq m and three million sq m per annum, respectively, while the Shanghai plant’s annual capacity is two million sq m.
Together, these manufacturing facilities have a combined capacity of 13 million sq m per annum.
“The Malaysian operations export about 20% of its production, while 70% of the Shanghai plant’s production is to cater for the export markets,” said Chua.
He expected the current weak ringgit to the US dollar to boost the group’s exports to the United States, the Middle East, India and Pakistan besides Australia.
He is confident that Kim Hin’s target of double-digit growth in group sales to RM350mil this year is achievable based on the six-month revenue of RM177.9mil against RM146.9mil in first half-2014.
The Malaysian operations contributed the bulk or RM119.7mil to group revenue, followed by Australia’s operations (RM29.1mil), China (RM28.4mil) and Vietnam (RM695,000) in the January to June 2015 period.
Last year, group sales surged by 20% to RM313.4mil from RM261.1mil in 2013. All geographical segments of the group recorded over 7% growth in revenue year-on-year, while group net profit soared to RM26mil from RM1mil in 2013.
Cash-rich Kim Hin plans to expand the Seremban plant to boost production capacity. Last year, the company invested some RM30mil in a second sophisticated production line, and it plans to add a third production line within two years.
In 2014, the company acquired land and factory next to the Seremban plant for about RM20mil as part of its expansion plan.
Chua said group earnings are expected to improve with the falling liquefied petroleum gas (LPG) price, which had dropped to RM2.37 from RM2.50 per kg in June and RM3.50 per kg before the plunge of global crude oil prices late last year.
As the company’s Kuching plant consumes an average of 800 tonnes of LPG a month, he said the fuel price reduction would translate into savings of some RM10mil a year, thereby boosting its profit margin. The fuel expenditure made up about 35% of the plant’s operational costs.
Chua expected the current LPG price to be maintained at the current level over the next 12 months.
As the LPG price is higher than the subsidised piped natural gas price in Peninsular Malaysia, Kim Hin is gradually scaling down its Kuching plant’s production volume to around five million sq m in the next three years from the current eight million sq m, with any shortfall in the volume to be met by the expanded capacity of the Seremban plant.
Kim Hin, which has cash and cash equivalents of RM47.9mil, will outsource the production of certain types of ceramic tiles which the group does not manufacture.