Listed on the ACE Market of Bursa Malaysia Securities Berhad, Kanger International Berhad (KANGER, 0170) is on track to becoming 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. This has given the already experienced Kanger a huge boost, who has been involved in the bamboo processing business over the past 16 years.
Strengthening capabilities as an integrated upstream and downstream bamboo producer
Along with the relocation of their main bamboo processing plant, Kanger entered a Public Private Partnership arrangement on a 70:30 basis with the local Jingzhou Government to develop a new bamboo processing plant and R&D centre that adopts the latest modern processing methods capable of processing raw bamboo into a wide variety of products. The new plant was built at a total investment cost of CNY200 million (RM121 million).
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.”
Mr. Kuah also noted the major advantage of relocating their bamboo plant to Jingzhou would be the ready availability of raw bamboo in the region. The partnership would inject a bamboo plantation concession totalling an estimated 20,833 acres over three phases. By being less reliant on external supply sources in producing bamboo products, this would prevent them from facing problems such as supply shortages and sudden price hikes which could have material effects on the cost of raw material and profitability.
Under phase one, a surrounding area of approximately 6,000 acres of fully mature bamboo has been made available. Under phase one alone, 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 that is processed into bamboo flooring, furniture and building materials. It is expected to potentially generate a total revenue of CNY 800 million (RM486 million) over the three year period. This is based on the average selling price of bamboo flooring which typically ranges between CNY300 to CNY500 per square meter (m2). In addition, as Kanger does not need to purchase raw bamboo from external sources, this translates to a cost savings of more than CNY 300 million (RM182 million) for the equivalent amount of raw bamboo available.
Attractive industry prospects
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 health benefits that aid in digestion, spiritual healing, promote mental alertness, and can be used to treat depression and respiratory diseases, among others.
Moving forward, the Group will focus not only on manufacturing of bamboo products but also processing of bamboo related foodstuff and bamboo eco-tourism. This will attract more tourists to Jingzhou and encourage the setting up of more bamboo related businesses amongst the villagers.
Future plans to build a resilient business model
• 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. 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. Sales of “CLASSEN” products have 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.
• 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.
The Group is also working closely with its dealers in implementing effective Online-to-Offline marketing and delivery channels, via a number of online platforms, including JD.com, Alibaba’s Taobao, and WeChat. To grow the export market, Kanger will be opening new international showrooms throughout Asia, Middle East, Europe and North America.
• 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. The land where the previous plant was located, Kanger has constructed two commercial buildings with a total net lettable area of 683,777 sq. ft. 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”, it is an integrated complex, enabling customers to view and buy cars, accessories and automotive parts from major brands. Car buyers will also be able to enjoy comprehensive after-sales, financing, and auto insurance services there.
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. With a total of 2,653 hotels across 54 countries worldwide, Louvre Hotel Group is the second largest hotel group in Europe and fifth largest in the world.
• 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.
Commitment in 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.”
“Meanwhile, our business is also enhanced by the lease income from our two commercial properties which will provide recurring income to the Group, thus enhancing our income visibility.”