KUALA LUMPUR: Xin Hwa Holdings Bhd, en route to list on the Main Market of Bursa Malaysia on June 30, will spend a large part of the initial public offering (IPO) proceeds to expand its business, including the construction of a new warehouse and expanding its fleet of vehicles.

Xin Hwa, a Johor-based integrated logistics service provider, which is raising RM26.45 million in its IPO, plans to use 42.03% or RM11.36 million of the proceeds to acquire 101 new vehicles, such as prime movers and trailers, to strengthen its transport services, which will be done in stages over the next 24 months.

The group currently operates 435 prime movers, 703 trailers and 35 trucks.

Another 17.96% or RM4.75 million will be used to construct a new warehouse in Pasir Gudang, Johor. Measuring 220,000 sq ft, the new facility will double the group's warehouse capacity to over 400,000 sq ft when it commences operations in the third quarter of this year.

Xin Hwa managing director Ng Aik Chuan said another 14.18% or RM3.75 million of the IPO proceeds will be used to repay its debts, 11.65% or RM3.08 million for working capital and the rest (RM3.51 million) to defray listing expenses.

“With the completion of the new warehouse, we expect a big, positive growth in revenue contribution from the warehouse distribution [segment],” Ng told reporters yesterday, after the launch of the group's prospectus pursuant to the IPO exercise.

"Xin Hwa will continue to capitalise on its strengths to generate sustainable revenue from its existing businesses," he said.

Almost 10% of the group's revenue is currently derived from its warehousing and distribution operations, while the land transportation services make up the remaining 90%.

Xin Hwa currently has three branch offices in Johor, but intends to set up an office in Kemaman, Terengganu.

“Currently, we have secured tenancy in Kemaman, and are in the midst of applying for a business licence and expect to commence operations there in the fourth quarter of 2015,” said Ng.

For its financial year ended Dec 31, 2014 (FY14), Xin Hwa posted a net profit of RM15.86 million on revenue of RM110.63 million, compared with RM13.88 million and RM97.22 million, respectively, in FY13.

Xin Hwa's IPO entails a public issue of 37.78 million new shares and offer for sale of 16.22 million existing shares, totalling 54 million shares at an issue price of 70 sen per share.

Based on the issue price of 70 sen per share as well as the enlarged issued share capital of Xin Hwa of 180 million shares, the group will have a market capitalisation of RM126 million.

This article first appeared in The Edge Financial Daily, on June 12, 2015.