This article first appeared in The Edge Malaysia Weekly on April 3, 2017 - April 9, 2017
LOGISTICS firm Xin Hwa Holdings Bhd, which mostly provides cargo transport services, wants to add a last-mile courier service to its business. But it is taking the novel route of first building up transaction volume by leveraging its investment in a new e-commerce platform.
Last Friday, Xin Hwa’s subsidiary Yiwugou E-commerce Sdn Bhd (YESB) launched e5buy.com, a business-to-business e-commerce platform that enables Malaysian small retailers or trading companies to source wholesale products directly from the Yiwu Commodity Market in China’s Zhejiang province.
By the end of the month, e5buy.com hopes to list 75,000 suppliers and 1.8 million products available for sale in the Yiwu Commodity Market, which is touted as the world’s largest small commodity wholesale market.
Conventionally, those wanting to source products from Yiwu Commodity Market or similar zones in China would have to travel there or purchase via middle men.
With e5buy.com, YESB, as the platform operator, will serve as a “middle-man”, so to speak. The prices on e5buy.com are quoted in ringgit, not renminbi, and include shipping fees and other costs associated with bringing in the goods.
According to Xin Hwa managing director Ng Aik Chuan, planning began over a year ago when the group wanted to look for growth opportunities for its logistics business.
It soon saw the immense potential that e-commerce presents, especially for its logistics business.
“We have to follow market trends and cannot miss the opportunity,” Ng tells The Edge in an interview.
Xin Hwa chief financial officer Kok Poh Fui says the group did not want to start up a last-mile courier service first and hope for transactions to pour in.
“Courier service needs a certain amount (of volume) to maintain the overhead costs. So, that’s why the strategy we took is to venture into e-commerce first. We build up the volumes first and then we start our courier last-mile service,” Kok adds.
The last-mile delivery will be done by Xin Hwa’s business partner, while Xin Hwa prepares itself to go into the courier space in the coming months.
Xin Hwa recently took a 50.01% stake in YESB for RM500,000.
Founded by local businessman Datuk Soo Boon Meng, the company has a cooperation agreement with Shanghai-listed Zhejiang China Commodities City Group Co Ltd’s subsidiary, Zhejiang Yiwugou E-commerce Co Ltd, to license the “Yiwugou” brand and access the latter’s database of sellers over a 10-year period.
Soo is familiar with the Yiwu Commodity Market, having run a trading and import business for the last 10 years.
Apart from bringing Yiwu to Malaysia via e5buy.com, Soo says the platform will eventually enable Malaysian businesses to sell their goods to Yiwu and China.
“When you talk about Malaysian products in China, they mostly know white coffee, Musang King durian and seafood. But Malaysia actually manufactures lots of products that we can sell to China, too. This is where we plan to come in,” he adds.
Xin Hwa is hoping to gain a slice of the cargo traffic that moves between Yiwu and Malaysia via e-commerce. According to Kok, based on conservative estimates, there are at least 2,000 or so containers being shipped to Malaysia from Yiwu every month. “Can you imagine, if we make it more convenient, there will be even more (containers),” he says.
Ng expects the e-commerce venture to contribute to Xin Hwa’s group earnings within a year, although he declined to disclose internal targets.
This will put Xin Hwa in a position to derive earnings from transaction fees on the e-commerce platform and eventually, earn the shipping fees as well.
Kok disclosed that Xin Hwa’s planned 400,000 sq ft warehouse in Shah Alam, Selangor, will be dedicated to handling e-commerce volumes when it starts operations by late 2018.
The Johor-based company started out as a family-owned land transport company before diversifying to include integrated logistics services. It does a lot of project cargo transport and container haulage, yet what it has going for it is that its warehouse and distribution service arm already provides services such as picking, labelling, packing and freight forwarding and customs brokerage.
According to Ng, Xin Hwa is planning to stabilise its new e-commerce operations in Malaysia before venturing to other Asean countries, such as Indonesia and Thailand, over the next three to five years.
Besides replicating the e-commerce model, Xin Hwa could also form joint ventures with logistics players in other regional markets.
Xin Hwa currently derives 93.7% of its revenue from its Malaysian operations, while Singapore contributes 6.3%, based on its FY2016 numbers. Its Singapore subsidiary was incorporated only recently.
Apart from growth opportunity, Xin Hwa’s decision to go into e-commerce is also driven by necessity. Xin Hwa is betting on e-commerce cargo to serve as a hedge against its core business, which is currently under pressure from macro-economic challenges that Malaysia is facing.
Kok concedes that the core business is coming under pressure. This is reflected in Xin Hwa’s recent earnings.
In its 3QFY2016 ended Dec 31, Xin Hwa’s net profit fell 16.7% to RM2.41 million from RM2.89 million a year ago, despite revenue inching up 4.05% to RM26.66 million.
(Last February, Xin Hwa announced that it was changing its financial year-end to March 31 from Dec 31.)
For comparison, Xin Hwa’s 12-month net profit fell 31.92% to RM10.86 million as at Dec 31, last year, from RM15.96 million a year ago. This was on the back of a 5.43% drop in revenue to RM102.02 million from RM107.88 million a year ago.
Kok says the weaker earnings were due to three factors — macro-economic conditions which affected revenue, higher interest incurred on a term loan to part-finance land acquisition and the expiry of tax incentives.
Land transport is the main earnings contributor, contributing 92.26% to revenue and 81.36% of pre-tax profit for the group, based on its 3QFY2016 earnings.
While a last-mile courier service could be synergistic to Xin Hwa’s business, what remains crucial is transaction volumes to justify the establishment of the new service.
It remains to be seen how much traction e5buy.com will have with prospective buyers.
True, it has already secured the seller part of the e-commerce equation, but it will still have to make sure it brings enough buyers to the table for transactions to take place. On that front, Kok says e5buy.com will be rolling out marketing campaigns to raise awareness and bring customers to its platform.
But competition in the e-commerce and logistics space is heating up, especially with the recent launch of Malaysia’s Digital Free Trade Zone, Alibaba Group’s increased focus on Southeast Asia and Amazon’s impending launch in Malaysia and the region.
The opportunities may be immense, but so is the competition.
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