• A fast-growing distributor in East Malaysia. Headquartered in Kota Kinabalu, Sabah, Kim Teck Cheong (KTC) was founded in 1938 and listed on ACE market of Bursa Malaysia on 25 Nov 2015. The company is engaged in the distribution of 3 rd party brands (accounting for ~95% of its total revenue) and in-house brands (~3%) of consumer packaged goods (CPG) and manufactures its own bakery products (~2%).

• Wide range of CPG and distribution network. KTC provides unlimited market access and coverage in Sabah (73% of 1H17 revenue), Sarawak (21%) and Labuan (6%), covering a wide range of CPG including F&B, personal care, household, baby care and other products, plastic food packaging products, OTC drugs and health supplements, with the support of 7,087 sales and distribution points. Overall, KTC covers over 84 districts, providing coverage of over 208 brands for 38 brand owners, supported by a total of 21 distribution channels.

• Establish a new distribution centre in Brunei. KTC is aggressively penetrating into Brunei following the acquisition of a 60% equity interest in Grandtop Marketing Sdn. Bhd. The acquisition will provide KTC with immediate penetration into the Brunei market with over 600 sales and distribution points, supported by ready business infrastructure and warehousing facilities.

• Uptrend intact. Near term outlook has turned positive following the recent bullish LT downtrend line breakout from the 52-week high of RM0.475 (6 Jan 2016). After the downtrend line was taken out in January, we have seen a series of higher high and higher low formation which is positive for the stock. We believe that more momentum could follow next after share prices broke out of its neckline last week, which may provide ammunition for the bulls to gain stronger momentum in the medium to long term.

• A decisive breakout above RM0.30 psychological barrier will spur prices towards RM0.31 (10 April high) and our LT objective of RM0.33 (38.2% FR). Cut loss at RM0.27.

Source: Hong Leong Investment Bank Research - 13 Apr 2017