Prada crocodile-skin supplier sees growth despite downturn

By Melanie Lee

SINGAPORE (Reuters) - Singapore-listed crocodile leather tanner Heng Long (HLIL.SI) hopes to see 20 percent profit growth this year, helped by demand from regular customers such as Prada that it sees as resilient to an economic downturn.

The firm, which processes raw crocodile and alligator hide into leather for handbags, watches and clothes, also said it plans to double production capacity within the next five years.

"We are working toward matching the first half (profit growth figure)," Heng Long director Koh Choon Heong told Reuters in an interview on Thursday.

Heng Long achieved a 19 percent rise in net profit to S$6 million ($4.2 million) in the six months ended June. Revenue during the period grew nearly 17 percent to S$36.1 million.

"We are proxy to the luxury industry. The luxury industry fortunately for us is largely resilient to economic downturns -- the rich always spend money," Koh said.

Heng Long supplies crocodile leather to Italian fashion houses Prada and A. Testoni and handbag designer Nancy Gonzalez. It is one of the world's largest crocodile tanneries, processing 280,000 skins a year.

The process of tanning raw crocodile hide to leather takes about a month. To make a luxury handbag, such as the Hermes Birkin bag, takes about three crocodile hides each costing around $300. The end product sells for around $45,000.

Although demand for such high end goods may wane in the United States due to economic woes, Koh expects emerging wealth from Russia and China to pick up the slack.

"I think we will see an increase in demand from Europe...manufacturing for new areas such as Russia," he said. "2008 is okay for us despite all the economic turbulence."

Heng Long, with a market cap of $54 million, competes with France Croco, an independent tannery in France, as well as the two tanneries associated with Hermes International (HRMS.PA) and a tannery linked with Gucci Group (PRTP.PA).

The firm wants to double production capacity by expanding its factory space to 10,000 square meters in the next five years.

Koh said that he expects the price of raw alligator hides to increase next year as the two Hurricanes, Gustav and Ike, which hit the U.S. in the past two months may have reduced the number of alligators hatchlings to be farmed.

"The impact of the hurricane was to damage the breeding habitats of the alligators," Koh said. "Therefore if the demand remains the same it's going to force the price up," he said, adding that this extra cost would be passed on to his clients.

Heng Long, which made its stock market debut in July this year, traded flat by 0810 GMT, in line with a steady Singapore index .FTSTI but 15 percent below its initial public offering price. (Editing by Neil Chatterjee)