Antenna maker widens scope

BIG crowds are expected at the Hunghom office of Innovative International (Holdings) in Harbour Centre over the coming weeks - lured not by car antennas and related products made by the company, but by its offices and flats being built in China. The diversified manufacturer has turned part of its office into a 6,575 sq ft showroom to promote its property project in Tianjin. In a sharp change from its core business of manufacturing, the company is now concentrating, through contractors, on construction works including hanging curtain walls on buildings as well as external and internal fittings. Innovative is one of the many Hongkong-listed manufacturing companies which have raced to diversify into the booming property market in China. But Mr Stephen Chang Lien-hing, chairman of Innovative, is quick to play down the company's exposure to the property industry, saying real estate will be only a side-business. ''Our strategy will continue to focus on the industrial sector, which will represent 70 per cent of total turnover in the long term,'' he said. ''We will also develop the trading and retailing business to account for 20 per cent of turnover. Property and other businesses will be the remainder.'' Innovative has a 55 per cent interest in the commercial-residential development in Tianjin, the third largest city in China. The first phase of the project, Innotec Tower, comprises a 27-storey office building and a 30-storey residential block for sale, with an 80,000 sq ft shopping complex on the lower floors. About 30,000 sq ft of the shopping space will be reserved for Innovative's own use. Managing director Richard Lum Chor-wah said the project would enable the company to have its own shopping premises to promote and market its products in China. ''We prefer to have our own place to sell our products. We'll not lease premises because of potential problems with landlords,'' he said. Mr Lum said Innovative would not move too deep into the property sector as a heavy exposure could drain its financial resources and distort the group's image as an industrial concern. ''We'll not commit ourself to too many property projects. We'd like to move step by step to make sure every project will be successful,'' he said. ''Our strategy is to use our strong points to attack the weaknesses of other people. Our strength is in the industrial sector, and we will stick to it as core business.'' The first phase of the Tianjin development calls for an investment of between HK$200 million and $250 million. Innovative is offering for sale only 25 per cent of the offices and flats at an average of $950 and $790 a square foot, respectively. Both Mr Chang and Mr Lum hope the sale of Innotec Tower will attract more foreign investors and attention to the property industry as well as the investment potential of Tianjin. Tianjin is Innovative's first destination in its extensive expansion into China. The city will be its base for developing business in the north of China. Mr Lum said the firm found it easier and more comfortable to do business with the people in Tianjin who were ''honest and did not like to play tricks''. Innovative was also encouraged by Tianjin's good investment environment and strong infrastructure, port and transport facilities, he said. The fact was that Mr Chang grew up in Tianjin and had established excellent relationships with Chinese officials helped Innovative's expansion in China. Besides property, Innovative has established its presence in the industrial sector and trading. It has set up a company, Innovative International (Tianjin) Development, with a paid-up capital of US$2.1 million in the free trade zone to trade in car parts and furniture. With a 21-year tax-free period, the trading business is expected to grow tremendously as the mainland market has enormous potential. Other expansion plans include a joint venture with Tianjin Miniature Motor Manufacturing to upgrade production of motors and develop mini-electrical tools. It has also teamed up with Research Institute No 18 of the Tianjin Institute of Power Sources to make high-technology environment-friendly batteries. The Tianjin Bicycle Factory, which manufactures the famed Flying Pigeon brand bicycles for local distribution, has linked up with Innovative to produce motorcycles. With its strong connection in Tianjin, it has been speculated that the authorities there are keen to take up shares in Innovative, although company officials insist that no discussions have been held. However, Mr Chang and Mr Lum were in Tianjin at the weekend to negotiate other potential projects in the city. The company is finalising a deal to buy a 50 per cent interest in two ''profitable'' toy factories, and the investment is estimated at US$2 million. The two plants manufacture toy products complementary to those made by Hongkong die-cast toy manufacturer Rhino Group, which is owned 45 per cent by Innovative. Analysts said the acquisition was intended to strengthen the business of Rhino, which could co-operate with the mainland factories for expansion. One analyst said Innovative might want to spin off Rhino for a separate listing on the Hongkong stock exchange, and the acquisition of toy plants could help in this respect. The group is also negotiating with Tianjin Automobile for a joint venture - either in setting up chain stores to market car parts or with Innovative as a supplier of car parts. Mr Lum said his group was relatively conservative in expansion and was always looking for investment opportunities in businesses related to its existing activities. While Tianjin was positioned as the company's headquarters in north China, Guangzhou would serve as the base to cultivate its businesses in the south, he said. In Guangzhou, Innovative is expected to invest about HK$77 million for a 55 per cent stake in a project with Guangzhou Electronics to build a 160,000 sq ft commercial and office complex on a 18,318 sq ft site. The first five floors of the complex will be used as a shopping arcade for electrical appliances and consumer electronic products. Listed on the stock exchange in 1991, Innovative has since embarked on an extensive diversification programme into other industrial, trading and even property businesses. The share price of the company has been quite volatile in the past year - hitting a high of $2.30 in June and a low of $1.18 in early December. The stock closed at $2.20 last Friday. The group reported a 96.8 per cent rise in half-year profit to HK$50.97 million on a turnover of $155.4 million. It is certain to see a strong growth in business for the full year to March 31, with turnover and profits forecast to exceed HK$300 million and $100 million, respectively. The improved performance could be partly attributable to the consolidation of production facilities at its new plant in Pinghu, Shenzhen. In anticipation of the contribution from property sales and industrial joint ventures in Tianjin, Mr Chang is optimistic that the company will see a good performance in the coming year. Analysts are quite positive on the stock although some worry that diversification into new ventures such as property development and retailing, and planned investments in manufacturing projects in China, could overstretch its management and financial resources. The group's gearing is expected to drop to about 20 per cent by the end of this month.