Business

Saturday June 27, 2009

A leg up for sole provider

By LEE KIAN SEONG in Jinjiang, China


MUCH has been said about China’s population of 1.3 billion. One thing everybody can agree upon is that given such size and the fact that the spending power of many Chinese is swelling fast, businesses in the country have a significant advantage.

While a lot of companies in the rest of the world are busy expanding abroad to compensate for the economic slowdown at home, China corporations have the option of concentrating on satisfying the rising domestic demand.

One example is Multi Sports Holdings Ltd. Driven by the strength of the footwear market, the sports shoe sole designer, developer and manufacturer plans to keep enlarging its business in China. To support that, the company is set to list on the Bursa Malaysia main board soon.

Lin Huo Zhi ... We are thorough in our processing of raw materials, and we carry out stringent evaluation of our semi-finished and completed products to ensure the quality of our products

The prospectus launch is tentatively slated for next month, and total gross proceeds from the initial public offering (IPO) is expected to come up to RM57.6mil.

The company’s first step is to invest RM30mil from the IPO to set up a new plant in China. The aim is to increase its current annual production of 24 million pairs of shoe soles to 50 million when it reaches full capacity.

Of the balance of the IPO proceeds, RM5mil is earmarked for the expansion of the sales and marketing network in China, RM3mil for advertising and branding, RM4mil for enhancement of product development capabilities, RM8.6mil for working capital and RM7mil to defray the listing expenses.

“We plan to purchase additional shoe moulds for our new production and we may finance this through internally generated funds. The additional investment will cost around RM10mil,” says Multi Sports executive chairman and chief executive officer Lin Huo Zhi during a media visit to China recently.

He is also the founder of the company and has about 20 years of experience in the shoe sole manufacturing industry.

He started the business in 1993 with just three employees. Today, Multi Sports is a vertically integrated company that can process raw materials, manufacture components for shoe sole production, and develop and design shoe soles.

Workers painting shoe soles in the factory of a subsidiary of Multi Sports Holdings Ltd in Jinjiang

It is well-known as the provider of Huoxing brand of shoe soles. Based on production output last year, it had a 0.2% market share of China’s footwear sole industry.

It now has about 1,900 employees and serves about 300 customers, including the manufacturers of Guohui, 361° and Xdlong shoes, which are leading brands in China.

The company registered a net profit of RM46.8mil in the financial year ended December 2008 on revenue of RM195.78mil. Its net profit and revenue grew at a compounded annual growth rate of 37.8% and 34% respectively over the last three years.

Lin sees growth potential in the footwear market, saying consumers in China may switch from foreign brands of sports shoes to local branded products during this economic slowdown.

“Thus, the manufacturers whose main markets are in China will be in a better position to ride out the current global downturn,” he says, adding that because of the robust domestic demand, the company is not heavily dependent on overseas expansion.

“The rapid expansion of the middle-income class in China, led by the rising well-educated and upwardly-mobile urban population with increasing purchasing power, will further boost demand.”

China produced an estimated 10 billion pairs of footwear in 2008. The gross output value in the manufacture of textile apparel, footwear and caps in China increased at an average annual rate of 22% between 2003 and 2007.

The retail value of clothing, shoes, hats and textiles grew at an average annual rate of 20.4% between 2004 and 2007, when it reached RMB302.4bil. In 2007, annual consumption expenditure on shoes by urban households in China rose by almost 18% to hit RMB242.6bil.

Multi Sports is based in Jinjiang, which is in the Quanzhou municipality in Fujian province. Jinjiang is China’s sports shoe manufacturing centre, accounting for about 20% of the world’s total production. The company says it is among the top five shoe sole manufacturers in Jinjiang.

According to Lin, over 90% of the manufacturer’s revenue is derived from customers within Fujian.

On the company’s strengths, he says the company has a strong in-house design and development team whose job is to continuously create shoe sole designs that keep abreast with the latest trends.

“We are thorough in our processing of raw materials, and we carry out stringent evaluation of our semi-finished and completed products to ensure the quality of our products,” he adds.

He says the company has been diversifying its customer base so that it will have established long-term relationships with a larger group of buyers.

Multi Sports has set a dividend policy of distributing at least 20% of its profit before tax per year. It is the second China-based company to announce its listing in Bursa Malaysia after Xingquan International Sports Holdings Ltd.

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