Malaysian moves

7 January 2005

Malaysian crane maker Favelle Favco has ambitious expansion plans, as David Hayes reports

Malaysian crane manufacturer Favelle Favco Berhad is seeking a stock listing on the Mesdaq Market in Kuala Lumpur to increase funding to purchase a new factory near the capital and finance business growth plans. These include expanding the company’s activities in the United States and developing opportunities in China.

In an interview with Cranes Today at the company’s Klang headquarters near Kuala Lumpur, Favelle Favco’s deputy managing director and CEO, Mac Chung Hui, dismissed recent rumours that a new owner is being sought for the company. He said: ‘We are not up for sale. There will be continuity in the company. We will use the listing money to fund part of the new factory which we are purchasing. If we are not capitalised we are not able to be aggressive enough. We will access the market more easily. For example, we are in the United States already, but if we commit more cranes there we could generate more sales. Similarly we could be more aggressive in China.’

Originally established as an Australian company in 1962, Favelle Favco has been part of Muhibbah Engineering of Malaysia since its acquisition in 1995. The listed parent company has four divisions – cranes, construction, shipyard interests, and assorted manufacturing and trading activities. The group’s turnover in 2003 was US$190 million of which cranes accounted for $50 million, equivalent to 27% of total revenue. Cranes-related revenues grew by 11% in 2003, up from about $45 million the previous year.

Favelle Favco employs a global workforce of 450 staff, and owns factories in Malaysia, Australia, the United States and Denmark. The company’s Thailand subsidiary is dormant, however, after being set up for sales activities in the late 1990s.Favelle Favco’s new crane factory is located near Seremban, about 100km south of Kuala Lumpur. ‘We will move our existing factory there. Our current factory is too small,’ Mac explained. ‘We are moving for efficiency reasons. The new plant is 68,000 sq m while our existing plant is 20,000 sq m.

We are cramped in this facility. We may look to subcontract some things in Malaysia and keep core competencies ourselves. We have not decided what to subcontract.’Plans call for about 40% of Favelle Favco’s equity to be listed on the Mesdaq Market. The funds raised will be used mainly as working capital. Muhibbah will still own about 60% of the company after the listing is completed.‘We cannot say how much we hope to raise until the public prospectus is issued,’ Mac said. ‘A formal application has been made to Mesdaq, which they will hear before the end of 2004. If it is approved we will proceed to become a plc.’

Muhibbah bought Favelle Favco as part of a business diversification programme. At the time the crane maker’s manufacturing operations were confined to Australia.

Shortly after the acquisition, Favelle Favco opened its Malaysia plant in Shah Alam near Kuala Lumpur in 1996 and then opened its US factory in Texas later the same year. By the end of 1996 Favelle Favco had expanded into the European crane market as well, after Muhibbah bought Krøll Cranes A/S of Denmark which makes the world’s largest tower cranes with a lifting capacity up to 10,000tm. 1996 also saw the purchase of the Manitex offshore crane business to add to Favelle Favco’s portfolio.

‘We opened the Malaysia factory just before the 1997 economic crisis. It was product development time then as Favelle Favco’s crane products were not suited to Malaysia,’ Mac recalled. ‘We did not fare too badly as the oil and gas industry kept us afloat. We are quite buoyant now.

‘It’s not on the cards to close any of our plants as each has its own strength and provides support to the markets.’Favelle Favco has four major products lines – tower cranes, offshore rig cranes, crawler cranes, and shipyard and port cranes.Diesel-powered luffing cranes are made in the plants Australia and Malaysia while electric powered hammerhead cranes are produced at Krøll in Denmark. Mac noted that some hammerhead cranes have been built in the Malaysian plant as well, but pointed out the company does not plan to move hammerhead production out of Denmark.

‘Malaysia is a good testing ground for us,’ Mac commented, noting that the company made a fully electric 8t luffing crane in Malaysia in 2003. ‘We have also refurbished a luffing crane in South Korea and turned it into an electric crane for a fleet rental owner.

‘We prefer diesel luffing cranes, but one or two markets require electric models, now so we have the two technologies. We may open a new market though we still believe the diesel luffing crane is the way to go.

’Luffing cranes are produced in sizes from 130 to 2,000tm while hammerhead cranes are produced in sizes ranging from 100 to 10,000tm.

‘Construction and offshore oil and gas rig cranes are about 90% of our business. They are our two main strengths,’ Mac commented. ‘In Malaysia we are focusing on the oil and gas industry because of the market conditions; in Australia as well, but we are also supplying some construction industry cranes there.’

With business strong in many markets, Favelle Favco expects global crane sales and rental revenue to reach US$60 million in 2004, registering a 20% increase compared with 2003.

‘There seems to be a global pick up in crane demand for construction and the oil and gas industry,’ Mac noted. ‘After the Iraq war ended, business picked up from July 2003. Other crane companies are the same. I would put it down to the general global pick up.’Asia accounts for 55% of Favelle Favco’s total revenue with Singapore, Malaysia and Australia being the three main markets. The United States is the largest individual market representing 25% of total turnover while Europe generates a further 15% of sales and the Middle East 5%.‘Most production in Malaysia is for the Southeast Asia market,’ Mac said. ‘Malaysia is about 10% of our worldwide crane sales while Singapore is about 20% – mostly for the offshore oil and gas industry mounted on production platforms and exploration rigs.’

Offshore industry is systematicOffshore rig cranes are produced in sizes ranging from 10tm small unmanned wellhead platform cranes to 250tm models. The most common sizes ordered are 20 to 30tm units. Favelle Favco also produces custom size offshore rig cranes to order.

‘We made one 150tm crane for a drilling contractor who ordered extra lifting capability for the United States market. Offshore rig cranes are normally tenders. It is quite a systematic industry,’ Mac said. ‘The oil and gas industry market is quite fragmented globally. We are delivering four small cranes of 15tm each to Abu Dhabi this year. Most of our competitors are global competitors.’

As all offshore rig crane orders are supplied in containers, transport is not an issue when competing against other crane manufacturers. Mac noted the recent upturn in Southeast Asia’s oil and gas industry crane market is part of the wider global upswing in the oil and gas sector due to high crude oil prices.

‘We are well placed for Southeast Asian offshore rig crane sales. Vietnam is a consistent market, but they do not buy a lot of cranes,’ Mac commented. ‘We have not really gone into Indonesia as the lowest price wins. We have not found a strategy to win or how to get a product to them at their price. Thailand is an interesting market. We have delivered to the Thai-Malaysia Joint Development Area offshore gas project platform.’

Meanwhile, Favelle Favco’s crawler crane business is based in the United States, but has not yet developed into a big income earner. Favelle Favco’s Texas plant produces cranes for commercial sale and for rental through the company’s American crane rental business.

Power modules are purchased from Caterpillar and then the crane assembly is completed inhouse. The crawler cranes are used for general construction and pipe laying. At present, the company has a fleet of 20 crawler cranes for rental ranging from 28 to 55t in size. Mac noted that the 28tm (Favco 30T) and 38tm (Favco 40T) models are fitted with telescopic booms while the 55tm model (Favco 60L) is installed with a lattice boom. Favelle Favco also supplies the Favco 50PL, a 45tm pipelayer crane.

‘We have just produced a 60tm telescopic crawler crane to add to our rental fleet,’ Mac said (see CT, June, pages 20 and 23). ‘Some of our cranes are rented out to other crane rental companies and some to end users. The fleet utilisation rate is going up; so that is a good sign for the US construction industry.’

One promising market attracting Favelle Favco’s attention is China. However, the company has yet to draw up a market development strategy.

‘We are still looking until we can figure out a strategy to meet our brand value and expectations of the Chinese market,’ Mac said. ‘Our biggest competitors in China would be Chinese crane companies but their crane performance is not in the same league. Chinese customers look at the purchase price first but are slowly changing. China is a big new crane and a big second hand crane market.’

Meanwhile, supplying shipyard and port cranes has dwindled into a small business activity in recent years after earlier being an important source of revenue. In peninsular Malaysia, Mac noted that Favelle Favco has contracted to build a 50t wharf crane for Malaysian Shipyard & Engineering in Johor Bahru. In addition, the company has received an order to build a 40t wharf crane for the Royal Malaysian Navy.

Favelle Favco also builds rubber-tyred gantry cranes under licence from Sumitomo Heavy Industries of Japan.‘Gantry cranes are very inactive now. We were going big at one time,’ Mac commented. ‘We haven’t pulled out, but we are still finding a way to compete. It is still an interesting market. We have to see how it moves. We have to get our price down. ZPMC of China is building 75% of the world’s supply, so we have to figure out how to compete.’