Corporate: Freight Management eyes Asean expansion

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Freight Management Holdings Bhd is moving into its next phase of growth, focusing its expansion plans across Asean to diversify its earnings base so it is not exposed to risks in one country segment alone.

The company’s founder and managing director Chew Chong Keat tells The Edge he and his wife Yang Heng Lam, who is executive director, established the freight services provider in 1988 in Port Klang, where its headquarters are. The company also has offices in Penang, Ipoh, Melaka and Johor, as well as five in Indonesia, one in Thailand and a recently opened office in Vietnam.

In the past seven years its compound annual growth rate (CAGR) for revenue has been an impressive 13.3% y-o-y from RM111.1 million in FY2003 to RM265.5 million in FY2010 ended June 30.

The company’s net profit has been rising in tandem with its revenue with an average CAGR of 18.2% from RM5.1 million in FY2003 to RM16.4 million in FY2010. Chew says he aims to maintain these growth rates moving forward.

“Our target is to grow our net profit by 12% to 15% this financial year,” he says. “But this will depend a lot on how the economies in the region perform.”

Chew, an economist by training, says the company is involved in an industry that relies on and is a direct beneficiary of economic growth because rapid growth is caused by increasing trade between nations. It is for this reason Freight Management is targeting further business opportunities within Asean as economic power continues to shift to the East from the West.

“It is not that we do not want to expand in developed economies. We currently derive about 7% of our revenue from Western Australia. But we want to focus on expanding our business into Vietnam and Cambodia in particular,” Chew says.

“In this industry, frankly speaking, the developed countries already have a mature logistics industry. In these countries, you are entering an area where there are already established players. So we feel it would be better for us to look into emerging markets,” he says.

In 1QFY2011, the company opened its Vietnam office in Ho Chi Minh City, which it plans to use as a springboard into neighbouring Cambodia.

“Cambodia is ... a unique market. Most investment is in the capital, Phnom Penh. But the capital is closer to Ho Chi Minh City than it is to the country’s main port of Sihanoukville. So Ho Chi Minh functions as the gateway, particularly for air freight,” he says. “Expansion into Cambodia is a medium-term target, but you never know what opportunities may suddenly come your way.”

The company aims to drive future profit by means of organic growth — increasing cost efficiency and establishing new businesses through greenfield, acquisition or joint venture opportunities in Malaysia and around the region, Chew says.

Freight Management, which currently employs 500 people, provides multimodal freight services through various modes of transport, including sea, land, air, tug and barge, and rail.

“We play an intermediary role, providing services in the transfer of goods between shipping companies and the buyers,” Chew says.

In FY2010, the company derived 59% of its revenue from sea freight, while air freight was the second largest revenue contributor at  9.3% to its total top line.

Moving forward, Freight Management continues to see its business mainly derived from the sea freight business as most containers entering the region still come by sea.

The company’s customer base is varied with over 2,000 customers presently on its list.

“Not one single customer exceeds 10% of our revenue. There are some multinationals, but the bulk of our customers are small and medium-sized companies,” says Chew.

Freight Management still derives most of its revenues from Malaysia at 78%, while Singapore is the second largest country segment contributor at 9%.

Freight Management has also been consistently paying out dividends since its listing in 2005, at an average rate of 30% of net profit per year, which Chew says the company aims to maintain going forward.

As at June 30, the company had short-term borrowings totalling RM11.5 million and long-term borrowings of RM21.9 million. Its cash and bank balances total RM21.6 million in its latest reported financial results.

The company reported a 21.1% jump in net profit in FY2010 to RM16.44 million in tandem with a 15.7% rise in revenue to RM265.5 million compared with the year before. EPS was 13.5 sen in FY2010. Chew attributes the company’s good growth to its unique business model, which he says sets it apart from other players in the industry by offering its own operated freight services, reducing the need to outsource these tasks to other intermediaries.

This allows Freight Management to cut costs and eventually translate these cost savings to its bottom line.
This article appeared in Corporate page, The Edge Malaysia, Issue 830, Nov 1-7, 2010