LISTED on the ACE Market of Bursa Malaysia Securities Berhad, Kanger International Berhad (KANGER, 0170) is on target to become the world’s largest producer of bamboo products with the commencement of a new high-tech bamboo processing plant and R&D centre, which was developed in collaboration with the local government of Jingzhou, Hunan Province, China. Kanger has accumulated vast experience and strong know-how of the bamboo industry, having been involved in the bamboo processing business over the past 16 years.
The Group’s main bamboo processing plant was relocated to Jingzhou from its previous location in Ganzhou, Jiangxi Province. With the relocation, the Group entered into a Public Private Partnership arrangement on a 70:30 basis with the local Jingzhou Government to construct 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 ¥200 million (equivalent to RM121 million based on RM1: ¥1.65).
“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,” said Kanger’s newly-appointed executive director Steven Kuah Choon Ching.
“The commencement of our new plant represents a key turning point for the Group. One major advantage of relocating our bamboo plant to Jingzhou is the ready availability of raw bamboo there. By partnering with the Jingzhou Government, they will inject a bamboo plantation concession totalling an estimated 20,833 acres over three phases.”
Kuah said the ready-to-harvest raw bamboo surrounding the plant will serve as a steady source of raw material supply in the production of bamboo products and act as the key factor in the upscaling of the bamboo products segment.
“By being less reliant on external supply sources in producing bamboo products, this would prevent us from facing problems such as supply shortages and sudden price hikes which could have material effects on the cost of raw material and our profitability.
“Our venture upstream into bamboo plantation concession represents a critical component in building a resilient business model. A continuous steady stream of raw bamboo supply strengthens the success factor of this project, laying a solid and sustainable foundation for the business,” he said.
Under Phase 1, a surrounding area of approximately 6,000 acres of fully matured bamboo has been made available. The Group estimates that it will take up to three years to utilise all of the ready-to-harvest raw bamboo into bamboo flooring, furniture, and building materials, which could potentially generate a total revenue of ¥800 million over the three-year period.
In addition, as Kanger does not need to purchase raw bamboo from external sources, this translates to a cost savings of more than ¥300 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 US$68.8 billion in 2018. Worldwide, bamboo is fast gaining recognition as a sustainable building material source and a ‘greener’ substitute for wood-based products.
With a growth period of approximately three times faster than timber, bamboo can be replenished and harvested more sustainably than any other timber. As a low-carbon building material, bamboo is being considered as the first choice for interior design and construction materials.
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.
It can also be used as a form of renewable energy as burning bamboo charcoal to generate electricity produces less pollutants as compared to standard charcoal.
Commencement of operations
With construction of the plant and commissioning of the machinery and equipment now completed, testing works are being carried out, with full commercial production commencing in the fourth quarter of 2020.
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 include:
• Import and sale of lamination flooring products from Germany
While the Group’s core bamboo processing business was temporarily interrupted due to the relocation of the bamboo plant from Ganzhou to Jingzhou, Kanger explored for opportunities to distribute other third party products. In 2018, the Group secured the exclusive distributorship in China for the CLASSEN brand of laminated hardwood flooring from Classen GmbH, Germany.
With 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 been encouraging and proved to be a good complement to the Group, generating revenue to the Group whilst the Group 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, the Group signed on 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 cooperating closely with its dealers in implementing effective Online-to-Offline marketing and delivery channels. It has a presence in 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 in 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 for land for the Group to embark on commercial property development for long-term rental income. On the land where the previous bamboo processing plant was located, Kanger has constructed two commercial buildings with a total net lettable area of 683,777 square feet (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 six-storey AutoCity with a net lettable area of 493,062 sq ft. AutoCity 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 with 190,715 sq ft of NLA and is 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 the Group’s China operations, the Group has set its sights on establishing new revenue streams in Malaysia. Recently, Kanger purchased a parcel of land measuring 5.5 acres in Kuala Selangor for RM6.8 million. The Group is actively looking out for strategic opportunities with attractive prospects for the Group to invest in.
Committed to delivering long-term shareholder value Kuah 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.”