Malaysian listed company Kanger International Berhad (KANGER, 0170) is on track to become the world’s largest producer of bamboo products. They have recently collaborated with the local government of Jingzhou, Hunan Province in China, and together, they have launched a new high-tech bamboo processing plant, as well as a new R&D centre.
What that means for Kanger?
The new bamboo processing plant and R&D centre built is thanks to a Public Private Partnership arrangement on a 70:30 basis with the local Jingzhou Government, this allows them to adopt the latest modern processing methods capable of processing raw bamboo into a wide variety of products.
Kanger Executive Director, Mr. Kuah Choon Ching stated, “Armed with the support from our strategic partner, the local government of Jingzhou, we are in a strong position to significantly upscale our bamboo processing business to become one of the world’s largest integrated bamboo producers in the world with both upstream (plantation) and downstream (processing, manufacturing and distribution) capabilities.”
Furthermore, by relocating their main plant to Jingzhou, they now have access to the vast amounts of raw bamboo in the region. At an estimated 20,833 acres, the bamboo plantation would mean being less reliant on external supply sources and avoid price hikes in the future.
Under phase one, a surrounding area of approximately 6,000 acres of fully mature bamboo has been made available. The Group estimates that it will take up to three years to utilize all of the ready-to-harvest raw bamboo, which is then processed into bamboo flooring, furniture and building materials that could potentially generate a total revenue of CNY 800 million (RM486 million) over the three year period. As previously mentioned, reduced reliance on external supply sources means cost savings of more than CNY 300 million (RM182 million) for the equivalent amount of raw bamboo available.
What the Bamboo industry looks like?
Market research estimates that the value of the global bamboo market stood at USD 68.8 billion in 2018, which experts expect to continue growing in the coming years. Worldwide, bamboo is quickly building a reputation as a sustainable building material source and a “greener” substitute for wood-based products.
In addition, bamboo can also be processed into bamboo fibre to be used in clothing materials as well as bamboo charcoal that can be added into food products to remove body toxins. Bamboo for medicinal purposes is gaining popularity as it offers many health benefits. Kanger will not only focus on manufacturing bamboo products but also processing of bamboo related foodstuff and bamboo eco-tourism, driving tourists to Jingzhou in the process.
Future plans in building a resilient business model
1. Import and sale of lamination flooring products from Germany
In 2018, the Group secured the exclusive distributorship in China for the “CLASSEN” brand of laminated hardwood flooring from Classen GmbH, Germany. Sales of “CLASSEN” products proved to be a good source of revenue to the Group whilst it scaled down its production of in-house bamboo products to make way for the relocation exercise of the bamboo plant. Coupled with the rising brand acceptance of “CLASSEN” in China, Kanger was recently presented with the Excellence Award for Best Supplier to the Chinese Bed & Breakfast Industry at the 2019 International B&B Industry Development Forum and the 2019-2020 “Illustrious Brand” award by the China Renovation & Construction Alliance.
2. Large distribution network to support sale of in-house and third party products
To enhance the distribution network of the Group’s in-house as well as third party products, they signed distributorships with third party dealers across China. Currently, the Group has established a large distribution network which comprises of more than 100 dealer stores across China.
Kanger is also working towards implementing effective online-to-offline marketing and delivery channels, namely, via online platforms, including JD.com, Alibaba’s Taobao, and Wechat. Furthermore, Kanger will be opening new international showrooms throughout Asia, Middle East, Europe and North America, in order to grow the export market.
3. Secured long-term recurring lease rental income
The relocation of the bamboo processing and manufacturing operations from Ganzhou to Jingzhou freed up land for the Group to embark on commercial property development for long-term rental income. Kanger has constructed two commercial buildings on the land where the previous plant was located. The Group has signed 10-year agreements to lease these buildings for RM11.1 million a year.
One of the buildings is a purpose-built 6-storey “AutoCity”, an integrated complex, enabling customers to view and buy cars, accessories and automotive parts from major brands. The second building is a 19-storey hotel leased to Ganzhou Fuying Kaili Hotel Management Co. Ltd, the operator of Kyriad Marvelous Hotel, an international business hotel brand under the Louvre Hotel Group who has a total of 2,653 hotels across 54 countries worldwide. Making them one of the largest hotel groups in the world.
4. Plans to establish new revenue streams in Malaysia
Backed by a healthy operating cash flow generated by its China operations, the Group has set its sights on establishing new revenue streams in Malaysia. Kanger recently purchased a parcel of land measuring 5.5 acres in Kuala Selangor for RM6.8 million. They are actively looking out for strategic opportunities with attractive prospects for the Group to invest in.
Committed to delivering long-term shareholder value
Mr. Kuah Choon Ching (柯俊敬) concluded, “With the commencement of our new high-tech bamboo processing plant in the fourth quarter of 2020, our financial performance in the coming year will be significantly enhanced by the contributions from the production and sale of our in-house bamboo products.”
“Looking ahead, we are confident that demand for bamboo will see exponential growth driven by its increasing use as a sustainable material for construction and rising consumer awareness on the benefits of bamboo. In addition, the R&D centre at the new bamboo processing plant will be utilised to pursue opportunities with regards to modern bamboo products and uses.”