About 20 years ago, Wu Qing Quan left school and joined a shoe factory. After working for a year or so, he teamed up with his elder sister to start his own shoe business, with a capital of only RMB500 (RM255).

In the early days, the siblings made about 20 pairs of shoes a day. From that humble start, business grew aggressively, and his footwear firm now has 3,000 employees. This year, it will be among the first few Chinese companies — if not the first — to list on Bursa Malaysia via an initial public offering (IPO).

While Xingquan International Sports Holdings Ltd is a relatively small shoemaker in China, it could be considered quite sizeable from the Malaysian point of view, considering how the Chinese define small and medium enterprise (SME).

The company’s listing prospectus will be launched in June or July. A listing could take place by the end of 3Q if things proceed as planned, Wu, who is the chairman and CEO, tells The Edge.

Xingquan’s factory — in Jinjiang city, Quanzhou municipality, Fujian province — occupies some 48,000 sq m, and has an annual production of “millions of pairs of shoes”. The company’s business covers the full spectrum of activities, from research and development of shoe soles to design and production of shoes.

“Jinjiang is the ‘City of Shoes’ in China. We have a lot of big brands here,” says the 40-year-old Wu, who speaks Mandarin with a thick Fujian accent.

While Xingquan does not own any retail outlet, its vast distribution network, which covers 20 of the 33 provinces of China, brings its products to 1,418 stores.

Remarkably, the number of stores that distribute Xingquan’s shoes has more than tripled in less than three years, from 409 stores in June 2006.

When the time comes for listing, Chinese companies often prefer leading financial markets in Asia, such as Hong Kong and Singapore. By picking Bursa, Xingquan has bucked that trend. According to Wu, the company was “fated” to get acquainted with CIMB Investment Bank Bhd, the adviser for Xingquan’s proposed IPO on Bursa.

“When we were planning to seek a listing overseas, we were not sure where to go. Then, CIMB coincidentally came to China and we got to know the banker through a friend,” says Wu.

“We did not know what the listing requirements are in Malaysia. Hence, we came here to study the stock market environment and met officials from Bursa Malaysia Bhd and the Securities Commission (SC). With the strong support of the Malaysian authorities and CIMB, we were determined to come here,” he adds.

Wu notes that the SC and Bursa have offered some incentives to Xingquan to expedite its listing here. These include exemption or reduction of certain fees and expenses related to the floating exercise.

“They (SC) had also undertaken to approve our IPO within one month,” he adds. Previously, Xingquan had also considered a listing in Singapore, Wu reveals, but Malaysia was the final choice.

What also contributed to Xingquan’s decision to list here is that Malaysia is relatively more stable, politically and economically, in the face of the latest global economic slump, says Wu.

An industry observer points out that Chinese companies do not fancy Singapore and Hong Kong as much as they used to a few years ago, partly because of the deteriorating valuations and given that the two markets are already quite crowded with a large number of Chinese companies.

Shoe companies from Mainland China that are listed in Hong Kong include Li Ning Company Ltd, Anta Sports Products Ltd, Xtep International Holdings Ltd and Belle International Holdings Ltd. Those listed in Singapore include China Sports International Ltd and Hongguo International Holdings Ltd.

Notably, Anta and Xtep also originate in Fujian’s Quanzhou municipality.

Wu says Chinese shoe companies are quite distinctive in the market segments they target. Xingquan positions itself in the outdoor recreational sports segment, in which Wu claims that it has a 7% market share.

“There are not many homegrown shoe brands in the outdoor recreational segment,” he says, adding that the company’s brand, Addnice, targets middle-income consumers, aged 20 to 45, who demand “functional and affordable sportswear”.

Addnice signed up Chinese female basketball player Miao Lijie, who plays for the Sacramento Monarchs in the US’ WNBA league, as its spokesperson between March 2006 and February 2007. Then, from April 2007 to March 2009, it got NBA player Jason Kapono. Kapono was the three-point shootout champion in 2007 and 2008.

Xingquan was incorporated in Bermuda last December. As a holding company, it owns 100% of Hong Kong-incorporated Addnice Holdings Ltd, which in turn owns 100% of Addnice (China) Co Ltd, Fujian Aidinaisi Sports Goods Co Ltd (Aidinaisi), and Xingquan (Fujian) Shoes Plastics Co Ltd (Xingquan Plastics). Xingquan also controls 100% of Fujian Province Jinjiang Xingquan Footwear Material Co Ltd (Xingquan Footwear) via Aidinaisi.

While the Wus started making shoes in the late 1980s, it was only in 1995 that they set up their first company, named Jinjiang City Xingquan Footwear Enterprise Co Ltd. By then, the siblings had several workers on board and had also begun producing shoe soles.

In 1999, Xingquan Footwear was established to expand the production of shoe soles. A year later, the Wus set up Xingquan Plastics and started providing OEM (original equipment manufacturing) services to renowned international shoemakers.

In 2002, Xingquan Plastics started supplying shoe soles to manufacturers of homegrown brands. Its current customers include brands such as Xtep, China Peak, 361° and Qiaodan.

The Addnice brand was conceptualised when Wu established Aidinaisi in 2003. The group started selling its products under the Addnice brand the next year. Later, it diversified its production to include sports and leisure apparels and accessories.

While the company’s listing on Bursa is imminent, Wu says it has no investment plan yet for Malaysia. Instead, Xingquan will build its second production facility in Hui’an, which is also located in Quanzhou, in the second half of the year.

“Currently, we sell most of our shoes in China. Exports account for less than 5% of our production. There is room for growth in the China market. We have no immediate plan to set up a facility in Malaysia,” he says.

Bursa is expecting more IPOs coming from China apart from Xingquan, as several investment banks, notably AmInvestment Group and CIMB Investment Bank, are actively getting SMEs from China to list here, The Edge reported recently.

It is estimated that Chinese companies seeking a listing in Malaysia could easily have a market capitalisation of RM500 million to RM1 billion, based on their annual earnings of RM50 million to RM100 million and assuming a price-earning multiple of 10 times.

As the historical and projected financial numbers of Xingquan will be disclosed only with the launch of its prospectus, the company is worth watching and its IPO is certainly much awaited by the local bourse.




This article appeared in the Cover Story page of The Edge Malaysia, Issue 757, June 1-7, 2009.