Hai-O Enterprise is now set to soar higher in the country and region with its Halal certificate and distribution approval from neighbouring countries.
THE Hai-O Enterprise Bhd annual dinner this year was different from previous years’ celebrations. For the first time in 41 years, company founder Tan Kai Hee did not deliver his own speech. It was read, albeit in an uneasy manner, by his 40-year-old son and recently-named successor Tan Keng Kang.
Tan – known as Kai Hee in the Chinese community – named his successor on Feb 1 after he moved up to become executive chairman. Last Monday, the lanky, silver-haired and modest businessman celebrated his 79th birthday with his staff at Wisma Hai-O in Klang, Selangor.
“When the time is up, I must let go. But as long as I am alive and healthy and mentally alert, I will continue to play my supervisory role in this company that I have built up,” Kai Hee unhesitantly declares .
As he tells Sunday Star, “I will leave the decision making to my son, but to be sure, I will still be around as chairman. As an elderly person with fewer friends as I age, I must continue to work to ensure I stay alert. This will also ensure I can live healthily and longer,” adds Tan, who at 79 has lost much of the vigour he used to exude.
Letting go one’s power and position is easier said than done. This is particularly so for Kai Hee, a famous fiery leader of the now-defunct Labour Party in the 1960s and unrelenting political detainee who had won thousands of left-leaning admirers.
Indeed, it is the flamboyant Kai Hee who has painstakingly built up Hai-O into a household name. To promote Chinese liquor sold by Hai-O he would even yam seng (make a toast) with his former political rivals, who included former MCA president Tun Lee San Choon. When that hit the news, it stirred up hot debates within the leftist circles.
Today, the group is involved in wholesale and retail sale of Chinese herbs and liquor, multi-level marketing (MLM), pharmaceutical manufacturing and Chinese medicinal clinics run jointly with China’s famous Peking Tongrentang.
In 1975, after two years of failing to find a suitable job following his release from detention in 1973, the dynamic Kai Hee organised 80 other former prisoners who were detained under the Internal Security Act to set up Hai-O (“seagull” in Mandarin).
“The Government had pampered us by giving us free food and accommodation in the detention camp for years. Hence, we all had no skill. The easiest way to survive was to talk and sell things,” he had wryly joked with this writer nine years ago.
With a pool of RM168,000 from these former socialist comrades – labelled as “communists” by the Special Branch – Kai Hee started his “red capitalist” life by importing tea, herbs and liquor from China and selling them locally for a profit. The timing was good as Malaysia and China had established official relations in 1975.
After struggling hard for years, Hai-O became the first traditional healthcare company to be listed on Bursa Malaysia in 1996. While some big groups had perished in past recessions, this small outfit run by people who believed in socialism continued to thrive with resilience.
Its success was honoured by Forbes Magazine in 2007-2010, with Forbes Awards for well-managed listed companies with market capitalisation under US$1bil(RM4bil).
But sweet success did not come easy for Kai Hee.
Nurturing Hai-O was never smooth-going. Along the way, about 30 of the 80 co-founders who disagreed with Tan’s management style and marketing gimmick dumped Hai-O shares.
These were picked up by Kai Hee, whose family now owns nearly 30% of Hai-O shares.
Hai-O also encountered failures that caused millions of losses. These included a failed investment in China, an unsuccessful attempt to attract Chinese retailers to UE3 Complex (now renamed Viva City) and an untimely establishment of a Pu-er tea investment fund.
But all these setbacks did not deter the Johor-born Kai Hee – who was managing director from the outset – to charge forward and steer the company towards diversification and higher profitability. Under Kai Hee’s leadership, Hai-O also grew in tandem with the pulse of the Chinese community. In selling Chinese products, Hai-O also promotes Chinese culture. The company has been an active sponsor of Chinese concerts, education and charities.
But this man with a multi-racial outlook had not forgotten his non-Chinese friends made during his Labour Party days. Eloquent in Bahasa Malaysia, he was a good friend of the late National Laureate Datuk Usman Awang and former Utusan Melayu editor-in-chief Said Zahari. He had sponsored the musical stage show Uda dan Dara written by Usman. He had also sponsored the first book written by Said as well as a biography on Labour Party and Socialist Front leader Dr M.K. Rajakumar.
And Kai Hee, who adores to be in the limelight, was until recently active in Chinese guilds and trade groups. The colourful businessman has shown he could articulate almost anything under the sun – including women’s issues.
And he was lucky to have a supportive wife in Tan Siow Eng, who has been overseeing the company’s finances. This lady boss was also a Labour Party leader and ISA detainee.
For Kai Hee, one of his greatest achievements was to co-found and lead the Malaysia-China Chamber of Commerce to promote China trade. In 1975, Malaysia-China trade totalled only US$500mil(RM2bil) but in 2015 it ballooned to US$100bil (RM340bil).
Today, Kai Hee – whose name is synonymous with Hai-O – is still promoting Chinese products. But he has stayed away from liquor. The yam seng voice is missing now.
Perhaps one of the greatest prides for Kai Hee is that this former “China man” company has successfully lured many Malays to work for it.
Currently, most of his MLM customers are Malays – no longer former political detainees and their families. Hai-O has undergone transformation. About 90% of Hai-O’s active 70,000 agents are Bumiputras and Hai-O has nurtured over 100 Malay millionaires via MLM, claims Kai Hee.
For his contributions in popularising Chinese products and promoting bilateral trade, Kai Hee has become a respected personality to the Chinese Government. This has made it easier for Hai-O in its business dealings. He believes that Hai-O will benefit from the One-belt, One-road programmes of China.
“Hai-O will continue to soar high and look afar like a seagull that we have adopted as our logo. And with this successor who has proven his ability, Hai-O will continue to grow,” says Kai Hee, as he details his son’s track record.
He says Hai-O will continue to expand from current workforce of 500 employees, 140,000 agents/distributors and 10,000 franchise holders. It is looking to expand its MLM business to Indonesia, Brunei and Singapore.
The turnover and net profit of the company is expected to rise by double-digit figures in the current and next financial years, according to Hai-O’s financial controller Hew Von Kin, despite the economic slowdown locally and in China.
Hew, also Hai-O’s executive director, says recent approval for the distribution of four to five Hai-O products in Indonesia is giving optimism that Hai-O could penetrate this 260-million-people market.
For the nine months ending in Jan 31, 2016, Hai-O’s total net profit increased 22.5% year on year to RM25.3mil while revenue rose 23.6% to RM209.5mil in the same period.
In the recent two-hour interview at Wisma Hai-O, Kai Hee was joined by Keng Kang and Hew to elaborate on this cash-rich company:
Q: When did you start grooming your son to be your successor? What leadership qualities are there in him? What has he done in Hai-O?
Kai Hee: He has played his role in Hai-O. He joined as operations executive in August 1998, after attending a course in international economics in Peking University. In May 2000, he was promoted as sales manager to deal in tea and beverages. In April 2012, he was appointed to the board and is a member of the risk management committee. In May 2014, he became our chief operating officer. We have sent him for business development in Thailand, China and Singapore, and he has shown he could make judgements independently and execute duties well. He is now mature enough to take over the running of the company, and the board decided to appoint him as the new managing director after I vacated the position.
Keng Kang is an expert on Chinese tea and a collector too. He had sold one piece of vintage tea for RM1mil before. He started Malaysia’s first Pu-er tea warehouse after studies showed that Malaysia’s climate is best suited to storing Pu-er. The continuous fermentation in Malaysia enables the tea’s quality and aroma to improve with time.
> When do you think you will retire fully from Hai-O? Is this possible?
Kai Hee: This has been my baby for four decades. People call me patriach of Hai-O. I personally still have a wish to see Hai-O getting bigger and stronger. As long as I am healthy, I will be around.
(Immediately after the question, his son utters softly, “Impossible for him to retire.”)
> What is expected of Hai-O’s performance in the current financial year? What could be the drivers of growth and challenges in future?
Kai Hee: As we have said before, the fourth quarter could sustain the 20-plus percent in growth. So for the 2015/16 full financial year, year-on-year growth could be around 23%.
Going forward, we expect the next financial year to continue the growth momentum and post double- digit growth.
The drivers of growth come from our product strategies and influx of new MLM members. Last year, we obtained the government’s Halal certification for our products. Due to this and our rebranding, about 4,000-5,000 Malays joined our MLM as members every month for the past six months. This will boost our revenue.
Currently, we have 70,000 active agents and about 90% are Malays. Additionally, our efforts in Indonesia in the past several years are bearing fruit. Indonesia has just allowed us to distribute four to five products there. Our top team leaders will go there to open up markets.
Indonesia is a market of 260 million people. It is our main target market as we expand regionally. But as its people’s purchasing power is still weak and product approval takes time, it may take time to see exponential growth there.
We are also looking at Singapore and Brunei. In these two countries, members purchase our products mainly for self-consumption.
But Malaysia is still our main market.
Keng Kang: As people in Brunei and Singapore are generally comfortable and more affluent, few are prepared to be active agents to sell Hai-O products. They buy Hai-O products for themselves and recommend the products to their friends.
>Hai-O has been buying back its share from the open market. Its net asset value (NAV) per share is RM1.28. What is the company’s assessment on its share value?
Kai Hee: Share buy-back is a share-price stabilising move. We plan to buy back 5% of our total shares and then distribute them as share dividend to our shareholders. We have another 0.5% or one million shares to go to reach our 5% target.
We had done this twice in the past. Apart from rewarding our loyal shareholders, we also hope to attract more people to buy our shares and become shareholders. Having more shareholders could also help discourage hostile takeovers.
Currently, my family is holding close to 30% of Hai-O shares. Shares held by our friendly parties amount to over 20%.
Apart from this share buy-back and distribution scheme, our dividend policy of giving out more than 50% of our profit is also attractive. Last year we gave out 100% of profit as cash dividend to celebrate our 40th anniversary.
Hew: Two research houses have given the target prices of RM2.50 and RM2.55 for Hai-O share. But if our properties, which are at historical cost, are re-valued, the NAV should be higher. But there is no plan to do re-valuation now as we are a trading company.
>Is Hai-O back on the radar of research houses? What is the percentage of institutional funds in Hai-O’s equity holdings?
Hew: Three research houses have visited us recently, after our last quarterly financial results showed that we are back on strong growth momentum despite the current economic slowdown and challenges faced in the plunge of the ringgit.
JF Apex Securities forecasts Hai-O’s revenue for year to end-April 2016 at RM281.7mil, up from RM239.9mil a year ago. Net profit is forecast to be at RM35.5mil, up from RM29.8mil. Its target price for Hai-O is RM2.50 per share.
Currently, institutional funds hold about 2% of our shares.
> Will Hai-O diversify into other sectors?
Kai Hee: Unlikely. We have a lot of good consumer products and our sales outlook is bright. These products are of quality and our healthcare products carry the desired effect. Hence, our business will continue to grow with momentum. But we don’t want to grow too fast and furious, like what we had done in the past. We want people to know the products and use them before promoting them aggressively. At the moment our best selling products include mineral coffee, bamboo salt and lady’s corset.
Keng Kang: I agree that we should focus on our core business. A government agency has indeed praised Hai-O for being a serious and properly run direct-selling company that has not gone astray like many others. We hope to continue to be a model company for other MLM players in Malaysia. There is still a lot of potential for Hai-O to expand its MLM business.
Hew: Our business model ensures that 70% of our dealings are in cash. There is very little capital cost. Hence, our cash flow is very strong. After giving out 100% of profit as cash dividends last year, we still have RM110mil in cash and short-term investments. As of today, the company has zero gearings.
> What opportunities are there for Hai-O in China’s One-belt, One-road programmes?
Kai Hee: We have been around selling Chinese tea, liquor and branded goods of China for 41 years, and Hai-O is still doing well. Few companies can claim matching achievements and status.
Indeed, many of the products we sell were transported along the old Silk Road. In other words, Hai-O was a pioneer in selling Silk Road goods.
Against this background, China’s One-belt, One-road economic strategy will help us to promote our products and boost our sales.
In fact, China’s state-owned CCTV has come here and interviewed me four times as Hai-O is seen as a pioneer in promoting Silk Road products.
Apart from this, Hai-O has also played a role in promoting bilateral trade and Malaysia-China friendship. I was the co-founder and leader of Malaysia-China Chamber of Commerce, as well as Malaysia-China Friendship Association.
I am confident Hai-O will benefit from this belt-road economic strategy of China.