Highlights

RajanKumar

Author: Rajankumar   |   Latest post: Mon, 14 Jan 2019, 05:25 AM

 

KTC (0180) - A package of hope

Author:   |    Publish date:


Consumer packaged goods distributor KTC eyes turnaround after turning in a profit in Q1

AFTER a loss-making bout amid a receivables debacle, consumer packaged goods distributor Kim Teck Cheong Consolidated Bhd (KTC) seems to have made a turnaround as it registers a significant growth in net profit for the first quarter ended Sept 30. (Q1’19).

 

The Sabah-based company charted a year-on-year net profit growth of 1625% to RM2.11mil in Q1’19.

In a Bursa Malaysia filing, KTC said the significant increase in net profit was due to new distributorships secured, which provided fast moving inventories and better profit margins.

The five new distributorships were secured from Heineken Marketing Malaysia Sdn Bhd, Oriental Food Industries

Collectively, the five contracts have a monthly target revenue of RM14.8mil.

KTC executive director Dexter Lau tells StarBizWeek that the company’s earnings ahead are expected to be favourable and consistent.

“There were several cyclical events this year, such as the zero-rated Goods and Services Tax (GST) period and implementation of sales and service tax (SST).

“The chances of a repeat in earnings performance like in FY18 should be drastically reduced, given that we will not be actively expanding, and shall instead aim to focus on improving our financial position,” he says.

As of Sept 30, 2018, KTC’s cash flow from operations have turned positive to RM747,000, when compared to the same period last year, which was cash flow negative at RM25.26mil.

In addition, the group saw an improvement in trade receivables turnover days from 83 days to 67 days in Q1’19, as well as an improved inventory turnover period from 93 days to 64 days.

KTC’s strategy remains in rationalising its business, by maintaining clients or brand owners that can provide synergy, and letting go of those with thin margins and heavier resource spend.

For example, in Q1’19, KTC reduced more than 30% of its client portfolio.

Despite that, the group managed to increase its revenue by 44% year-on-year during the quarter.

KTC’s gross profit margins are generally consistent at an estimated 12% to 13%.

The group’s net gearing currently stands at 2.12 times.

Implementing more prudent financial management, KTC can further reduce its net gearing, going forward.

During FY18, the group made losses amounting to RM8.13bil, which was attributed to the termination of contracts with several agencies, closure of government-owned chain of convenience stores resulting in returned goods, ongoing write-off of expired and damaged products as part of prudent inventory management practices, as well as writing-off GST dispute and overdue prepayment.

KTC was also embroiled in a debacle over an outstanding receivables amount of RM4.93mil over a period of 270 days, which saw the resignation of former audit and risk management committee chairman Wee Hock Kee in September.

Wee had opined that the receivables should be impaired, but the board had decided that the amount was recoverable.

Lau clarifies that a sum of RM4.72mil of the outstanding RM4.93mil had since been collected, plus some RM180,000 was written off as a prudent measure.

He says the receivables sum was considered to be immaterial as it only constituted 1% of total group revenue, and was recoverable.

Following Wee’s resignation, Wong Wen Miin was appointed to the board of KTC as its new audit risk management committee chairlady.

Wong, with her roots as a reporting accountant, has served across various divisions under the Works Ministry, Finance Ministry and the Prime Minister’s Department for more than 30 years.

“Madam Wong has been a great addition to the board and her appointment is in line with KTC’s target to appoint more board members who bring with them technical expertise and have the ability to provide practical advices to the group.

“In fact, upon her appointment, the first thing Madam Wong requested was to look through our books, during which she found a mistake in an under provision of taxation,” Lau elaborates.

KTC has taken cognisance of the Minority Shareholders Watch Group’s comments on Wee’s resignation, and has since appointed two qualified accountants to the board -- one being Wong, and the other, former auditor Phang Sze Fui.

Lau notes that the company’s financial results would have been better, had KTC not engage in an aggressive expansion over the past two years.

“However, it is much like a chicken and egg situation.

“If we did not expand our capacity, we would not have been able to obtain distributorship agreements from larger clients like Heineken and L’Oreal.

“Now that the expansion part is done for the near term, our focus is to improve the processes in the business, in terms of efficiency, effectiveness, and adaptability,” says Lau.

One and a half years ago, KTC’s utilisation rate of its warehousing infrastructure was only less than 20%.

Currently, the capacity is nearly 100% utilised.

In terms of revenue breakdown by geographical market, KTC has grown its Sarawak and Brunei segment to constitute 44.6% of total revenue in Q1FY19, as compared to 31.6% in the same quarter of FY18.

KTC’s closest peer would be Harrisons Holdings (Malaysia) Bhd, also based in East Malaysia.

Harrisons has a larger market capitalisation of RM239.7mil, and currently trades at a price-earnings (PE) multiple of 9.72 times.

On the other hand, KTC has a market capitalisation of RM68.9mil.

Assuming that KTC is able to replicate their performance in the first quarter throughout the rest of the quarters in FY19, they will achieve a net profit of just above RM8mil.

At the current market price, this implies a forward PE of approximately eight times, which is a discount to Harrisons. It remains to be seen how KTC will perform in the coming quarters.The group will have to keep a close eye on its cash flow management and gearing levels as it seeks to solidify its turnaround plan.

 

Share this
Labels: KTC

Related Stocks

Chart Stock Name Last Change Volume 
KTC 0.16 +0.005 (3.23%) 667,200 

More articles on RajanKumar >>


 

402  326  492  672 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 ARMADA 0.22+0.06 
 SAPNRG 0.285-0.005 
 SUMATEC 0.005-0.01 
 MYEG 1.01-0.06 
 BARAKAH 0.08+0.02 
 NEXGRAM 0.020.00 
 IRIS 0.15+0.005 
 XINGHE 0.045+0.005 
 KNM 0.09+0.01 
 ECONBHD 0.515+0.045 

TOP ARTICLES

1. 火中取栗拼油气(下) 菜鸟必学7招/冷眼 【冷眼专栏】漫漫投资路
2. 当遇上基本面投资法(上) “反向”战略非唱反调/冷眼 【冷眼专栏】漫漫投资路
3. Stocks on Radar - AirAsia Group (5099) AmInvest Research Reports
4. THE PERCEPTION OF P/E or: How I learned to fear my Wife the bursa journey that worked for me. 2000-2019
5. FPI FY19 revenue growth expected to hit 15% FPI 2大因素前景看好台灣聯友今年再 尋突破
6. [转贴] 真实还原97亚洲金融风暴,韩国从暴富到破产仅用时7天! Good Articles to Share
7. Stocks on Radar - Elsoft Research (0090) AmInvest Research Reports
8. JAKS Resources Berhad - RM25.5m P&L Hit PublicInvest Research
Partners & Brokers