In Xin Hwa’s 2014 financial year, the group recorded a revenue of RM110 million, as well as a total gross profit of RM37.5 million, which boiled down to an after-tax profit of RM15.3 million. Comparatively, as of the end of the third quarter of the group’s 2015 financial year, Xin Hwa has managed a year-to-date revenue of RM82.2 million, as well as a year-to-date after-tax profit of RM12.1 million.
According to managing director Ng Aik Chuan and general manager Teo HC, more than three quarters of the group’s revenue comes from the group’s land transport operations, with the remainder coming from the group’s warehousing operations.
However, Teo also pointed out that the profit margin for land transport operations, which stands at about 20%, cannot trump its warehousing operations which boast a profit margin of 80%.
“Xin Hwa’s warehousing has the highest margin due to its fixed costs, as well as how we maximise the use of our warehousing facilities,” explained Teo, noting that Xin Hwa is one of the top providers of warehousing services in Malaysia.
It was explained to KINIBIZ that Xin Hwa caps the use of its warehouses to between 80% and 85% capacity, with the remainder used as ad hoc space or temporary storage in the case of extraordinary circumstances. Turnover in a warehouse is also very important, according to Teo, as a warehouse with low turnover is actually looking at reduced margins.
An example given was the group’s facility in Pasir Gudang, Johor. This stands as the largest warehouse in Johor at 220,000 square feet with 32 loading bays to facilitate a quick transfer of high volume in inventory items, allowing for rapid turnover for the goods it stores.
This warehouse has also received a bonded warehouse licence from the Royal Malaysian Customs, which would allow owners of any goods stored on the premises to defer payments of duties until the goods are removed. The group also has a 180,000-square-foot warehouse attached to their headquarters.
Xin Hwa’s warehousing tailors the racks to the client’s goods and serves as a last-mile connector “ready to operate 24/7” as well. Having implemented an in-house domain system in 2013, Teo stated that the group is looking to implement a barcode scanning system, allowing for greater efficiency in stockkeeping.
Yeo’s is one of the major clients with a partnership of more than six years with Xin Hwa, moving 120 containers a month. Yeo’s contracts Xin Hwa to move its export-grade goods to Cambodia and Vietnam for local distribution to hypermarkets. Fluxtronic had also used Xin Hwa’s warehouse space for its goods while preparing their own warehouse.
Another client is furniture producer Seahorse, who contracts Xin Hwa for importing, storing, as well as distributing its goods both to furniture shops and to end users directly. Other clients include names like Caring, Anlene, Starbucks, and McDonald’s.
Of course, KINIBIZ could hardly ignore the chance to ask Ng about what the company plans to do moving forward. Ng replied that the plan is to expand the business and move into Sabah and Sarawak.
“I hope to double business within the next five years and expand into Sabah and Sarawak, maybe even out of Malaysia. However, I think the current challenge is Sabah and Sarawak, as expanding there might be difficult,” said Ng.
To that end, Ng noted that the fleet of lorries will have to expand.
“Of course, it is constantly expanding, as we acquire one to two every month as part of a non-stop fleet expansion exercise,” said Ng.
Here, Ng noted again that the way they expanded conformed to the group’s financing solution in the beginning.
“It still comes down to instalments. Say I buy one lorry, financed by the bank, and I pay a monthly instalment of about RM4,000. If I buy 20 lorries this way, I will have to pay RM80,000 a month. But the difference between this system and our system of purchasing lorries portion by portion, is that our system has no interest charge. Considering the interest over time from paying for a lorry can actually buy me another lorry in cash, I might as well save and buy the lorries portion by portion,” explained Ng.
“This way was one of our solutions 15 years ago, and it remains applicable today. Other than saving on paying interest, it also avoids a lot of red tape. Of course, now we no longer have the restriction of purchasing portion by portion. As long as it is needed, we can get it,” added Ng.
In this way, the Ng brothers had managed to grow their company from about 20 drivers, three staff members, and the three brothers themselves in 1996, to their current roster of 280 staff and 700 drivers in 2015.
With regards to the weakened ringgit, Ng noted that the impact, while there, would be temporary, noting that things should return to normal as consumers acclimatise. While imports definitely feel the impact, Ng is of the opinion that the logistics sector is versatile, and should see an impact of below 5%.
Ng also noted that the long-term goal is for Xin Hwa to take first place in land transport in Malaysia, having already become one of the largest transporters in Johor. Ng is also looking to move Xin Hwa towards stronger sea and air logistics.
“We do have sea and air transport capabilities, as we are a total logistics company, but sea and air transport is not among our core competencies at the moment. We hope to be able to count those among our core competencies in future,” said Ng.
A word of experience
When asked if he had any advice for budding entrepreneurs, Ng was ready to impart.
“Remember to keep your focus. In the case of Xin Hwa, we focused on land transport as our core competency, and kept our focus on that core business,” said Ng, also advising entrepreneurs to be responsible and to be able to face the client, as well as see things from the client’s point of view.
“It is not just a matter of doing business, it is cultivating a relationship with the customer, as well as the values behind the business. That is job satisfaction,” added Ng. Teo noted that the group was also maintaining a principle of bringing up Gen Y employees to positions of responsibility as a means of passing on knowledge about the industry, as well as to empower the staff and allow senior management to focus on key issues by being able to delegate tasks without worry.
“At the beginning, as a small company, talents will be hard to come by sometimes. Here at Xin Hwa, we encourage our staff. As long as you are willing to learn, we will not give up on you. Also, value your talents.
“Here at Xin Hwa, we have a monthly group birthday celebration for our staff, and this has been our tradition for four years, as well as giving out service awards every year,” said Ng, noting that Xin Hwa features three-month internship programmes “as part of our version of giving back to the community”.
Despite admitting to being a workaholic, Ng also stressed the importance of relaxing and destressing, as well as keeping an open mind.
“Yes, work is my hobby, but I also keep my koi fish nearby,” said Ng, who has won awards for his koi fish, and also takes yearly trips to Japan to visit his koi fish there.
Lastly, Ng noted the importance of giving back to the community. As an example, Xin Hwa gives back by donating to old folks’ homes, as well as sponsoring vehicles for the annual Chingay Parade in Johor.
“Aim high, but stay rational. Persevere, and remember to never give up,” advised Ng.
Yesterday: The minutiae of moving the big picture