KTC is aiming to penetrate into the Sarawak market by acquiring warehousing facilities in Sibu, Miri and Kuching while it is also looking to strengthen its presence in key Sabah markets
KUCHING: Analysts are optimistic on the prospects of Sabahan company Kim Teck Cheong Consolidated Bhd (KTC) after its listing tomorrow on the main market of Bursa Malaysia.
Its resilient product mix portfolio is one of the key components to Kenanga Investment Bank Bhd’s research arm (Kenanga Research) pegging this optimism.
“Based on its financial year 2015 (FY15) figures, food and beverage (F&B) products were the biggest contributor to its gross profit (43 per cent), followed by personal care products (33 per cent), manufacturing of bakery products (seven per cent) and household products at five per cent.
“We think that the favourable product mix is defensive and resilient against the economy slowdown as both F&B and personal care products are necessities, which are further aided by the strong brand image and profile of KTC’s customers,” it said in its initiation report yesterday.
“Thus, we think that KTC may be one of the names to look out for in the consumer space, particularly in the current situation where consumer sentiment is weak.”
KTC has earmarked RM14 million or 65.7 per cent of its initial public offering (IPO) proceeds for expansion both in the distribution business as well as the bakery manufacturing division.
To note, KTC is aiming to penetrate into the Sarawak market by acquiring warehousing facilities in Sibu, Miri and Kuching while it is also looking to strengthen its presence in key Sabah markets by constructing a new warehouse in order to cater for broader customer base.
The Group also plans to add three production lines in its existing bakery plant in Sabah as the sole production line is currently running at peak utilisation rate.
“While the expansion plan is key to provide the impetus for earnings growth, we think it also signifies the group’s optimism and confidence on its business as well as market potential,” it added.
Looking at its financial results, Kenanga Research observed that KTC’s FY15 gross margin expanded to 13.7 per cent from 13 per cent in FY12, which the firm deemed “impressive” considering the huge revenue growth of 50 per cent from RM200.3 million in FY12 to RM299.9 million in FY15 as established brand owners generally have more bargaining power by giving sizeable volume to distributors.
We understand that the feat was achieved thanks to its original brand manufacturer) (OBM) brands in which the group markets and distributes inhouse products through the Creamos brand (bakery products), Orie (frozen and dry food) and Bamble (personal care products),” it opined.
“Moving forward, we think that the additional bakery production lines as well as the OBM initiative will be able to protect its earnings margin from the downside.”
Thus, Kenanga Research pegged a fair value of RM0.24 per share for KTC.
“We also view KTC as a cheaper proxy to the consumer F&B sector which commands an average price earnings ratio of 21.8 times due to its exposure in F&B products.”