Kim Hin Joo (Malaysia) Bhd (“KHJ”), a retailer and distributor of baby, children and maternity products, is well-known for its franchise of Mothercare and Early Learning Centre (“ELC”) brands. KHJ is making its debut on the Ace Market. Recommend BUY with a target price of RM0.48 based on 12.6x PER FY20 of Bursa Malaysia Small Cap Index.

KHJ’s exclusive rights to Mothercare and ELC products in Malaysia have given them a strategic advantage over their competitors in terms of brand heritage and recognition. Mothercare plc is listed on the London Stock Exchange and is a globally recognised retailer of baby, children and maternity products. Led by a team of experienced management since 1987, KHJ has to date owns 17 Mothercare outlets and 11 ELC store-in-store carrying 184 brands across major cities in Malaysia. KHJ’s network is backed by a total of 635 distribution points spreading throughout Malaysia and overseas with top clients such as Tesco, Aeon Co. and Sogo Department Store.

KHJ intends to open 4 to 5 new Mothercare outlets within 3 years of listing whereby the group has secured 2 premises located at Sunway Velocity Mall and Empire Shopping Gallery, expected to open by 3Q 2019. RM10m or 30.6% of the IPO proceeds will be utilised for its Mothercare outlets expansion. Next growth catalyst will be from their new toys range from The Entertainer UK. The group is in the midst of finalising the development agreement with the UK-based toys retailer to operate The Entertainer outlets in Malaysia. Notably, toys products dominate the baby, children and maternity markets in Malaysia with imports of approx. 69% in 2018. Thereby, RM5m or 15.3% of the proceeds is allocated to open 3 to 4 The Entertainer outlets within 3 years. Another RM3m will be used to upgrade and revamp KHJ’s back-end IT infrastructure and e-commerce platform while RM4m is allocated for the expansion of distribution business.

KHJ has a commendable balance sheet with net cash position. The group intends to adopt a dividend payout policy of 40%, translating to a dividend yield of 3.1% and 3.5% in FY19 and FY20 respectively. Driven by new outlets opening moving forward, we expect net profit to achieve 12% and 16% growth in FY19 and FY20 respectively.

Source: Rakuten Research - 8 Jul 2019