Hong Leong divisions plan broad move into China


BY C.S. TAN

HONG LEONG group is known to have only one division that is a major success in the China market. This is its subsidiary OYL Industries Bhd which manufactures air-conditioners and air filters.  

Now, the group wants to broaden the range of its businesses in that market, analysts close to the group said. 

OYL's success in China has given Tan Sri Quek Leng Chan the confidence to tap China's market with other products made by the group. Quek heads the Hong Leong group.  

On the strength of OYL's success, the group is constructing a third air-conditioner plant in that country. The company has been operating there for just over 10 years. 

Now, Malaysian Pacific Industries Bhd (MPI), another member company, has built a semi-conductor factory in Suzhou, China. 

Hume Industries Bhd, also a member company, is exploring setting up a plant in China too. Its Hume Cemboard operations may be extended to China. Hume Cemboard makes fibre cement boards for office partitions and other uses.  

In addition, Hong Leong Industries Bhd (HLI), a subsidiary in the Hong Leong group, is exploring the manufacture of floor and wall tiles in China through its Guocera division.  

These are the companies - MPI, Hume Cemboard and Guocera - that are doing well here. They therefore have a good chance of replicating their sound business structure here over in China.  

Guoco Group Ltd is another member company that features in the expansion into China. This is a public-listed company in Hong Kong, which is controlled by Hong Leong Malaysia. Guoco is strategically located in mainland China and it has housing developments in Beijing and Shanghai.  

OYL Industries' plant in Shah Alam.

More important, Guoco still has more than RM10bil cash from its sale of Dao Heng Bank to Singapore's DBS Bank. The bulk of this cash, however, may be targeted for the takeover of a global company and that's not necessarily one that is in China. Even so, Guoco would still have funds for further investments in China.  

“Quek is looking ahead to the next 10 to 20 years, and he believes Hong Leong Malaysia should have a large presence in China by then,” said an analyst. 

The companies chosen to expand into China are mainly manufacturing businesses. 

In Malaysia, Quek is identified by analysts as a banker, and trader and manufacturer of building materials, more so than as a property developer and hotelier. Hong Leong's roots in Malaysia were after all in the trading of building materials.  

As for banking, it is not possible yet to explore opportunities in this sector in China until 2007 when it opens its financial market as it agreed to with the World Trade Organisation.  

In contrast to the group's enviable record in banking and manufacturing, it has encountered more difficulty in improving profitability in its property development and hotel operations in this country.  

This is in contrast with Hong Leong Singapore, which is led by Quek's cousin, Kwek Leng Beng. The Singapore group has built a global chain of hotel properties, but the Malaysian group has its own strengths. 

Meanwhile, it is understood that Ho Yuk Choy, OYL's managing director for the air-conditioner division, is based in Shanghai.  

Further, Hume Cemboard's managing director Steve Yap and Guocera Marketing's managing director Richard Ng are said to be spending more time in China nowadays. 

“Quek is sending his top people to China,” the analyst said. In addition, only selected companies will move into China.  

In the past, the group, like most Malaysian business groups, were too diversified. Now, Hong Leong's focus is on the businesses that are steadily growing.  

Presently, OYL has factories in Wuhan, which is centrally located in China and in Shenzen towards the south. The third plant in Suzhou, which is near Shanghai, towards the north, will provide the company with factories well spread out over China.  

Also, in Suzhou, the MPI group is building a plant to produce semiconductors. This is undertaken through its subsidiary, Carsem Semiconductor Sdn Bhd, which runs very profitable semiconductor manufacturing operations in Ipoh.  

It is a logical move for Carsem to plant up in China as many of its customers - multinational corporations (MNCs) - have set up new factories there. Carsem provides support manufacturing services to these MNCs.  

It may seem that Hong Leong is stepping into China a bit late. Everyone, from the corporates to the man in the street, has been talking about China.  

Hong Leong had made some tentative manufacturing investments in China more than 10 years ago. However, those early forays do not seem to have worked out well. It was not until OYL expanded into China that the group developed a thriving business there.  

The group's relatively late expansion into China enables it to learn from the experiences and mistakes of others. Most of the Malaysian companies that sought a share of the China market have found a host of problems there instead. 

The only outstanding success in China by a Malaysian group was achieved by the Kuok group. There is one key difference between it and other Malaysian groups and that is Robert Kuok is based in China and he is known to have close relationship with senior government officials there. 

Another perceived weakness in the Hong Leong group is the lack of a strong brand. Even OYL owes its success in Malaysia to its franchise of York air-conditioners from a rival company. Its homegrown brand Acson is not as well known. While its acquisition of McQuay air-conditioners, a global company, gave it the McQuay brand, public awareness of it in consumer markets is relatively weak. 

An analyst said the recent sale of the Hume group's 32.4% stake in Industrial Concrete Products Bhd (ICP) for RM95mil cash would provide the former with funds for an expansion into China. The ICP stake was sold to IJM Corp Bhd

The search for investment opportunities in China stems in part from an awareness that there will not be much expansion of its manufacturing plants in Malaysia. Costs are relatively high here and the market here is growing at a slower pace than in China.  

Over time, Malaysia and shareholders of Hong Leong units will indirectly have a share of China's growth market if the group executes its plans in its characteristically resourceful way. 

 HLBANK : [News]   [Stock Watch]  OYL :  [News]  [Stock WatchMPI :  [News]  [Stock WatchHUMEIND :  [News]  [Stock WatchHLIND :  [News]  [Stock Watch]

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