ILB free to expand in China
STAR BIZ, TUESDAY, 31 JANUARY 2006
By: KATHY FONG

SHENZHEN: China’s State Council has granted Integrated Logistics Bhd (ILB) subsidiary Integrated Shun Hing Logistic Co Ltd (ISHL) a Class A licence that allows it to expand operations in the country without geographical restrictions.

Also, the licence enables the group to offer more logistics services, such as freight forwarding and haulage.

“We obtained the Class A licence about three months ago,” ILB chief executive officer Tee Tuan Sem told StarBiz.

“This will allow us to expand our operation to any part of China. Previously, we were restricted to certain areas.

Tee Tuan Sem

“We already have plans lined up to win more business with that licence. It will help to boost our earnings growth.” Tee disclosed that ILB had already started exploring opportunities outside tax-exempt zones in places in which there was a cluster of manufacturers. The group currently owns several warehouses in Shenzhen’s Futian tax-exempt zone that borders with Hong Kong, and Shanghai’s Waigaoqiao tax-exempt zone in east China.

ILB’s core business in China has gone beyond warehousing. It offers vendor management inventory (VMI) solutions that enable manufacturers to practise just-in-time concept by having all raw material vendors store under one roof, and also to assemble finished products in the warehouse.

Without the Class A licence, ISHL - as a foreign-owned company in China - could only operate within the tax-exempt zones.

The granting of such a licence is part of the liberalisation of China’s logistics sector due to its commitment to the World Trade Organisation.

Beginning this year, foreign companies with minimum capital of US$5mil can apply for the Class A licence to gain a foothold outside the tax-exempt zones.

Tee said ILB was indeed one step ahead because its 70%-owned unit, ISHL, was a Hong Kong-based company so it managed to obtain the licence a year earlier than other foreign players under the Closer Economic Partnership Arrangement (CEPA).

CEPA is only applicable to companies in China’s two special administration regions – Hong Kong and Macau.

Tee said the provision of additional services, like freight forwarding, would complement the group’s existing VMI business.

“ILB will be a full-fledged logistics company in China, like what we are in Malaysia. So, we could then offer a higher value-added logistics package for our customers,” Tee explained.

China operations currently form an important part of ILB’s core activities, accounting for nearly 70% of the group’s earnings.

With the additional income generated from new warehouses that were completed last year, the group’s pre-tax profit rose 31% to RM21.7mil in the nine-month period ended Sept 30, 2005, on slightly higher revenue of RM139.6mil against RM133mil in the previous corresponding period. Its earnings per share came in at eight sen compared with seven sen previously.