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Saturday June 23, 2012

On top of the world

Favelle Favco makes cranes that sit atop the world's tallest structures

MAC Chung Hui's company does RM500mil worth of business every year, but he does not go out of his way to impress.

In fact, he is courteous and greets you with a warm smile.

Thing is, this CEO is only 33 years old, and has a habit of looking down on people.

Literally, I mean.

Because that is his business.

His company, Favelle Favco Bhd, manufactures cranes that sit atop some of the tallest structures in the world. Peering down at the rest of mankind from the top of these edifices is a sight he is familiar with.

Favelle Favco cranes built the Burj Khalifa in Dubai, Taipei 101, the Petronas Twin Towers, the Shanghai World Financial Centre and also the Jin Mao Tower in the city.

The company's cranes were also used in 1967 to build the World Trade Center twin towers in New York which were destroyed in 9/11. Favco cranes are now helping to build the replacement tower One World Trade Centre.

Favelle Favco cranes have been used to built the Jin Mao Tower (left), the Shanghai World Financial Centre (right) and the Shanghai Tower (foreground).

Home built

Favco cranes are made in the Senawang Industrial Estate, just south of Kuala Lumpur.

There, on a sprawling 17-acre site, all the pieces that make up a crane are fabricated, assembled, tested and then shipped overseas.

Some 35 engineers work on design, research and development. Another 15 do the same at a smaller plant in Batu Tiga, Selangor. An outfit of almost similar size works out of the company's Sydney office.

This Sydney office is the link to the company's history. Favelle Favco began as an Australian company and was bought over by Muhibbah Engineering (M) Bhd, a company controlled by Chung Hui's father, Mac Ngan Boon, in 1995.

“Muhibbah was looking to diversify its business at that time and it was thought this was an investment we could help build,” Chung Hui says.

Mac Senior had high expectations. The company he bought was not doing well. It had been around for some 30 years but had gone bankrupt several times in the course of a chequered history.

“So when we took over the company, the challenge was very clear: Make sure it doesn't go belly up! And make money!”

Much-needed break

“The first few years were very difficult,” Chung Hui says. “We had to learn the business from scratch, and it took us more than five years before we had a good grip over things.”

“There were ups and downs but two breaks helped us. In 1997, we were awarded pioneer status by the Ministry of International Trade and Industry, and that meant we didn't have to pay tax for a few years. That gave us some breathing space.

“We were also accepted as a vendor by Petronas and managed to win a few contracts to supply offshore cranes. We were still on the learning curve at that time, working hard to establish our reputation. So the Petronas support at a critical time was helpful.”

Chung Hui: ‘You cannot depend on today’s demand to determine tomorrow’s needs.’

Chung Hui himself joined the company in 1999 after graduating from Nottingham University with a civil engineering degree. In 2004, he became CEO.

How has the company fared since? In 2006, it was listed on the second board of Bursa Malaysia. The following year it transferred to the Main Board. Today it has a market capitalisation of RM250mil. Sales have averaged RM490mil annually and profits RM29mil over the last five years. Return on equity has been in the region of 16%.

“So, from a financial point of view, I think our performance has been respectable. We now contribute to about 30% of Muhibbah Engineering's turnover,” Chung Hui says.

Can he maintain this level of performance? “Our best year was 2007-2008, when the global construction industry and the oil and gas industry were at a height. Yes, we tend to do well when there is a building and investment boom.”

What about now, with parts of Europe sick and the US economy yet to fully recover?

“We are a global company and if one part of the world is in the doldrums, some other part may be very vibrant and that helps to even things out somewhat. In fact, our volumes are very close to pre-crisis levels again.”

“Asia generally is still going strong, and you can point to the Chinese market, for example, and see tremendous potential there,” Chung Hui adds.

“What we have to make sure is that we are at the right place at the right time.”

Heavy business

How does Favelle Favco differentiate itself from the competition?

“We are in a niche market. We specialise in the manufacture of specific types of tower and offshore cranes. We are not involved in the mass tower crane market or the mobile crane market, for example.

“Our specialty is the construction of “high speed high lift” tower cranes. We move heavy things up and down fast. Some people say we are No. 1 in this market segment.

What does “heavy lifting” mean in the crane business?

“In tower cranes, we are talking about moving 60 tonnes or more. In recent years, we have been delivering tower cranes that can lift more than 300 tonnes. That has become normal for us.

“But we are outdoing ourselves now. Just last month we shipped an offshore crane to a customer in Germany that will be used to build offshore wind turbines. The crane has the ability to lift 1,000 tonnes,” Chung Hui says proudly.

So technological improvements are important to maintaining the company's competitiveness.

“Yes, and that is why we have a good research and development team. We have a good mix of Malaysian and non-Malaysian engineers, with most of them based here. We believe it is good to have people with different skills and ideas and from different backgrounds working together.

“What is important is that our engineers should be able to deliver what our customers want,” Chung Hui says.

Staying ahead

“But you cannot depend on today's demand to determine tomorrow's needs,” he says. He has to anticipate future trends and his team is working on a number of projects to ensure the company stays ahead of the curve.

“The crane we just shipped to Germany represents a new benchmark for Favelle Favco in terms of what we can do.

“But the market is demanding more. It wants cranes that can move still heavier loads. So we have started working on that and investing in new technology again.

“We are using in-house skills to introduce some innovation to the design of cranes. For example, a standard crane has a fixed straight arm which is swivelled around carrying a load. But you cannot move the arm around too much if you have to work in a confined space.

“So the solution is to build an arm with an elbow (or knuckle). You can then bend the arm while carrying your load and manoeuvre within the limited space.

“Only a few companies have the technology to build these knuckle-boom cranes. We are investing millions of dollars to develop this technology and we are targeting to come up with a prototype before the end of the year.”

Chung Hui gets most excited when he talks about his current pet project, to build a sub-sea crane. This involves developing the technology to handle loads located below the surface of the sea.

“We are in new territory here. The science involved is different. You must be able to compensate for vessel motion caused by wave movement.

“But if you want to be part of the oil and gas industry, which is where the demand is going to come from, you have to ask yourself whether you want to check this out.

He clearly knows what he wants. His engineers are hard at work.

Note: Research for this article has been supported by the International Trade and Industry Ministry to promote discussion of how companies can change and innovate to become more competitive.

A two-pronged strategy for growth

Mac Chung Hui on Favelle Favco's growth strategy:

● We have a two-pronged strategy. The first is to establish a presence in the Chinese market. The potential there is huge. Many of our suppliers and competitors are also there. So this is a priority.

● We have just established a small operation in Shanghai. We need to add capacity, and our target is to sell about 10 to 12 cranes a year for a start.

● We also want to expand our rental business for tower cranes in China. We currently have a fleet of seven cranes, and our target is to rent out at least 50 medium to large-sized cranes within five years.

● The second prong of our growth strategy is to ramp up our service business. The life of a crane is between 20 and 30 years, so servicing and maintaining them can be a sizeable business on its own.

● Our servicing revenue has grown over the years. It now makes up about 20% to 25% of total revenue. Our target is to develop our service business to be as large as our manufacturing business. That will give us a steady cash flow. It will also reduce our exposure to the ups and downs in the manufacturing side of the business.

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