Thriving in a crowded field
The Edge, 5 July 2004
Lim Chong Kim is no stranger to adversity.
So, if stock market pundits pour cold water on his plans
to list his rubberwood board laminating business, he has
a ready comeback for them.
"I don't see why there should be so much negativity
about the rubberwood business," says the managing director
of LIMAHSOON Bhd. "We're not furniture makers. We are
the suppliers to them. In this line, we are the king."
The schedule is set for LIMAHSOON to be listed on the Second
Board of Bursa Malaysia by July 22. Up for subscription
is a new issue of 16.4 million 50 sen shares at a premium
of RM1.08 each, the proceeds of which will go towards factory
expansion, repayment of dues and working capital.
So what is the attraction of LIMAHSOON?
Furniture or not, companies involved in rubberwood products
have not been performing on the stock market. Door frames
and moulded furniture parts maker Dominant Enterprise Bhd,
for example, is trading at 78 sen, not much higher than
its offer price, while Baswell Resources, a furniture exporter,
last registered a share price lower than its initial public
offering price of RM1.50.
Admittedly, it was the debacle at Tat Sang Bhd, shortly
after its listing, that seems to have nicked the lacquer
off this once touted industry.
Still, Lim speaks strongly in defence of it.
"In all industries, you'll find a black sheep. But
you have to look at the numbers - the furniture industry
has been growing at an average of 10% over the last five
years. You may not find another [industry] growing at that
rate," he says.
LIMAHSOON's roots can be traced back to 1987, when Lim and
one of his five brothers set up a sawmill known as Guan
Guan Timber Industries in Salak South, Selangor. Having
grown up in an environment of timber processing owing to
their father's partnership in a sawmilling business, the
Lim brothers had enough experience to venture out on their
own.
Their father would eventually join his sons at the sawmill,
which produced planks of tropical wood for export to Japan
and Europe.
However, by the 1990s, tropical wood had begun to lose its
charm as pressure from environmental groups forced the government
to restrict logging. Tropical logs became a scarce and precious
commodity. At the same time, the Lims were fast going out
of business.
This unsustainable supply of tropical wood, fortunately,
had been anticipated long before. Research on using rubber
logs, which would have otherwise been burnt as fuel wood,
as a raw material provided a substitute - rubberwood.
Naturally, the Lims' sawmilling business moved to sawing
rubber logs in place of tropical logs. But the margins were
small and the profits elusive.
"That's when we thought of making laminated boards.
We knew that we were already latecomers in the business,"
Lim recalls. To the uninitiated, laminated boards are essentially
narrow planks of wood, jointed together on ends and glued
together to form a board used in furniture-making.
Lim and his brothers needed to find an edge. They invested
in superior German and Japanese machinery for their factory
while other laminated board producers were using Taiwanese
ones.
At the same time, they would integrate the manufacturing
process from sawing to treating to drying and packing, to
ensure the best quality at the best price.
In 1997, LIMAHSOON would once again face a road block. The
Asian financial crisis severely affected consumer demand
which hampered furniture sales. Malaysian manufacturers
had not yet developed their export markets as an alternative.
What was a geared-up factory operator to do?
"We gave our clients credit and we guaranteed quality,"
Lim says. "We told them they didn't have to pay us
until they were satisfied with our product. And we worked
really hard at the factory."
At its worst, the banks were already foreclosing on loans
and calling in their facilities. The Lims chose to liquidate
some property to come up with enough working capital when
others would have clung on to their assets while being content
to see their business slip into bankruptcy.
"We were told by people to just give up because nobody
was paying the banks. But we said no, this is our blood,
we have to save it," says Lim dramatically. The company
finally pulled through the difficult period, and in 1999,
was making a profit. "Our customers kept coming back
so players who were in front of us lost out."
Beating the odds nudged LIMAHSOON into the leading position
in the laminated board business. Today, the group has a
market share of 8% in a RM525 million market where there
are 90 players. LIMAHSOON is also the only company that
focuses purely on producing laminated boards.
It now prides itself on being a benchmark for the industry.
It turned in revenue of RM21.3 million in the financial
year ended Dec 31, 1999, steadily growing that to RM35.8
million in 2002 and RM44.9 million in 2003. Net profit also
expanded from RM1.9 million in 1999 to RM6.2 million in
2003 and RM6.8 million last year, with an average profit
before tax margin of 18%. This year, the group forecasts
a profit after tax of RM9.6 million on revenue of RM47.3
million.
The group's facility in Beranang, Selangor, produced about
20,000 sq m of laminated boards last year. Investment in
plant expansion will raise capacity to 24,000 sq m this
year. Lim happily declares that the group's biggest challenge
now is coping with the growing demand. Several listed furniture
companies such as Latitude Tree Bhd and Lii Hen Bhd make
up LIMAHSOON's list of customers.
Post listing, the Lims will have a collective stake of about
55% held directly and via Syarikat Vanlin Sdn Bhd.
Link captured from: www.theedgedaily.com
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