HAI-O Enterprise Bhd, a wholesaler and retailer of Chinese herbs and medicine, is spending RM50 million to buy a plot of land and build new facilities in Kapar, Selangor.
The company will pay RM45 million to Bata (Malaysia) Sdn Bhd for a 11.2ha site, and spend another RM5 million to set up a new factory and a warehouse there, senior officials said.
It has yet to finalise the building plan and manufacturing output, they added.
Managing director and chief executive officer Tan Kai Hee said the company would use its reserves to pay for the land and build new buildings to expand its manufacturing output. It may also consider a private placement to raise the fund.
"We are cash-rich, generating RM10 million to RM15 million annually to our reserves," Tan told reporters at the signing of a sale and purchase agreement on the Kapar land in Kuala Lumpur yesterday.
Financial controller Hew Von Kin said Hai-O would use about 6.8ha of the land to build new facilities, while the balance of 4.4ha would be leased back to Bata for handsome fees.
Hew said Bata would pay RM2.5 million a year for the first three years for the use of the land and existing and new buildings to be built on it.
The building should be ready by mid-2008 with the leaseback deal expected to start in May, he added.
Hew said if the company decided to go for a private placement, the amount would be up to 10 per cent of Hai-O's paid-up capital of some 82 million shares.
Nevertheless, he said, the need was not pressing for now because of the company's strong cash flow.
"In the first six months, we had net operating cash of about RM20 million. Traditionally, our second half is stronger," Hew remarked.
Hai-O's net profit in the three months to July 31 2007 rose 103 per cent to RM7.1 million, or 10.5 sen a share, while revenue climbed 51 per cent to RM59.3 million.
For the year ended April 2007, the company made a pre-tax profit of RM15.13 million on the back of revenue of RM146.79 million.