Xingquan's chairman and managing director Datuk Wu Qing Quan said that the company planned to buy advanced equipment to venture into the production of knit fabric, which could be used in producing shoes and the inner lining of clothing.
“For the first phase, we will buy 80 to 100 knitting machines, which would cost about 150 million yuan and supported by 200 million yuan supporting cash flow,” Wu said after the company's AGM here today.
He is optimistic that the knitting machines will help to increase the revenue of the company. It is expecting that the knitting machine would increase the product range offered by the company and contribute about 100 million yuan to the company annually.
The purchase of the knitting machines are expected to be completed by the first half of 2016 (1H16) which would contribute to its financial year ending June 30, 2016.
The shoe soles and casual wear apparel company saw its net profit for the first quarter ended Sept 30, 2015 dropped to RM7.13 million from RM39.44 million a year ago. Revenue also declined to RM134.77 million from RM202.05 million a year ago.
The group expects a challenging FY2016 and the upstream expansion was to meet these challenges arising from the slower China market, the negative impact of the recent China stock crash in July on retail spending and the aggressive expansion of e-commerce platform in China.
Wu also said that the company did not plan to build new factory to accommodate the new machines as there was enough space in the factory, however, minor construction work would be carried out to properly place these machines.
Apart from that, the company has also invested in new rubber injection machine to produce two-in-one shoe soles with two different colors, to meet the latest international shoe soles making trend.
Xingquang, which has 111 self-operated point of sales (POS) in China currently, planned to go big in e-commerce by joining renown e-commerce platform such as Tmall, JD.com and VIP.com.
The e-commerce, begun two years ago, has complemented its physical POS and distributor channels to boost the revenue of the group.
According to Wu, the revenue from e-commerce accounted to about 10% of the total revenue. However, he said he could not give a target of the e-commerce contribution to the group’s revenue as the group was still in preparatory stage to ramp up its presence in the online platform.
“E-commerce platform is different from physical shop. In physical shop, you can display your apparels, belts shoes and people will come and buy. But for online store like Tmall and VIP, you have to have 50,000 units readily available, if we cannot meet the demand of the volume, it will be bad for the company and Tmall.
“For example, on the Singles Day, Alibaba.com managed to achieve a sales of 90 billion yuan this year, which means at least 500 billion yuan of inventory has to be ready. It is not as simple as physical store,” Wu said, adding that the group needed more working capital to meet that demand.
Speaking on the need for the company to hoard up a cash pile of RM886.55 million or 1.46 billion yuan as at Sept 30,2015, Wu explained that the group needs to have enough cash flow to run the daily business, coupled with the 350 million yuan the company put away for the knitting machines.
Wu also said the group was in talk with an international brand on possible acquisition plan but added that it was premature and the group did not set any specific time frame for the acquisition.
At mid-break today, Xingquan rose 2 sen or 3.33% to 62 sen, with 1.86 million shares changing hands.
XINQUAN (5155) - Xingquan to spend RM99.22m on knitting machines for upstream expansion
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