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Gefung rides on China
Star Publications, 2 April 2007
CHINA'S robust economic growth has given rise to many millionaires and billionaires.
Luxurious brands, like Ferrari and Louis Vuitton, have flocked to the mainland to feed the growing appetite for expensive items which could be a private jet or a grand villa.
Premium marble product manufacturer Gefung Holdings Bhd has been riding high on the “wealth boom” in China for the past eight years.“After all the studies and surveys on several markets, we have decided to go to China and started our operations in August 1999,” managing director Jeffery Seo Aik Leong told StarBiz.
The timing was just right for Gefung to enjoy the property boom in Shanghai and subsequently throughout China.
Gefung's marble and granite slabs, used for flooring, walls and even door frames, are in hot demand for the interiors of five-star hotels, commercial blocks and luxury homes in China.
The company operates a plant in Qingpu, Shanghai.
Over 80% of its revenue and profits are derived from China.
“The influx of foreign investments into China created much wealth for the locals. Gefung is a beneficiary of that,” said Seo, the company's founder and major shareholder.
That said, investors could have raised their eyebrows at Gefung's performance – it incurred a net loss of RM18.7mil last year. Seo, however, pointed out that the numbers released were not reflective of Gefung's true earnings.
The group undertook a reverse takeover to resume the listing status of ailing Jin Lin Wood Industries Bhd on the second board of Bursa Malaysia last November.
“That losses were actually due to a non-operational item. It was a one-off adjustment of RM23.8mil arising from the restructuring scheme,” Seo said, adding that the company's earnings only kicked in during the final quarter.
According to Seo, Gefung had, in fact, posted a net profit of RM16.6mil, up 75% from RM9.9mil in 2005. Revenue rose to RM58.7mil from RM44.3mil.
Gefung has a total three-year pre-tax profit guarantee of RM78mil. “We are confident of meeting the profit guarantee,” said Seo.
Fighting for a slice of the China market is tough although the pie is big.
Seo is well aware of the fact that the Chinese have a better competitive edge over foreign players, who have higher operating costs to contend with.
“The locals won't mind eating noodles that costs five yuan at a roadside stall. Can a foreign manager do that continuously?” he quipped.
There are over 200 granite and marble product players in China.
“It is not wise to compete on prices with the Chinese. We, foreign players, will definitely lose out in a price war because we have a higher cost structure,” said Seo.
Gefung is targeting the premium market as its rivals cannot compete with it in terms of quality and technology.
“We can command a higher price, and hence, have a wider profit margin,” said Seo.
Product quality is key in capturing the premium market. And this very much depends on the quality of the raw granite and marble blocks Gefung buys from the quarries in Turkey, Iran, India and Indonesia.
Seo never takes the quality of the company's raw materials lightly as they contribute more than half to Gefung’s production costs.
Last month, Gefung bought a Turkish company that owns extraction rights to two quarries in the country for US$4.5mil (RM15.7mil) cash.
“The acquisition will spearhead Gefung’s venture into upstream operations. It is in line with our expansion,” said Seo.
The deal would enable Gefung to have full control of the pricing, quality and supply of raw materials. The company would invest RM4.3mil as working capital to enhance quarry operations in order to raise production capacity.
Although the growth potential is great in China, Seo still sees the need to diversify into new markets in case of a slowdown in the Chinese economy.
“We are exploring opportunities in Europe in addition to Japan, South Korea and the Middle East. We hope that our quarries in Turkey, which has just joined the European Union, will be our stepping stone into euroland,” said Seo.
