Kim Teck Cheong Consolidated Bhd ("KTC", stock code: 0180), an East Malaysia third-party consumer packaged goods (CPG) distributor is set to be transferred to the Main Market of Bursa Malaysia today. KTC has shown impressive growth, achieving a CAGR of 62% from 2019 to 2022. With expansion plans in the pipeline, we anticipate its net profit will reach RM22.2m and RM24.4m by FY24 and FY25 respectively. BUY with a target price of RM0.33, based on a 10x PER on FY24 EPS or a 50% discount to Bursa Malaysia Consumer Product Index current PER due to its small market capitalisation.

Having accumulated more than 85 years of experience, KTC is now a leading CPG distributor in East Malaysia and Brunei. It has established a strong distribution network covering brands such as Procter & Gamble, L’Oreal, Nestle, Danone, Kimberly-Clark and more, with 29k stock-keeping units under its portfolio. Additionally, KTC manufactures and distributes its own bakery products under the brand Creamos. Furthermore, KTC holds the exclusive distributorship of Gardenia bread in East Malaysia and Indonesia, a venture that started in 2020.

Currently, KTC owns and rents 13 warehouses, totaling 350k sq ft, which are currently 85% utilized. To accommodate its growing business in East Malaysia and Brunei, KTC plans to add an additional 140k sq ft of warehouse space within the next 2 years. In addition, KTC aims to expand its fleet of trucks from the current 30- 40 trucks to approx. 200 trucks by the end of 2023.

The bakery products segment contributes 2.6% of KTC's total revenue as at 3QFY23, with one bakery manufacturing facility in Sabah. Management envisions significant growth potential for its bakery products, especially in the highly populated market of Indonesia. However, due to the perishable nature of bakery products, with a shelf life of up to 7 days, KTC is currently identifying land to establish two new manufacturing facilities in Kuching, Sarawak, and Balikpapan, Indonesia. Each facility will have an approx. manufacturing floor space of 10k sq ft. The commencement of these facilities, targeted for July 2024, is expected to increase the number of loaf batches by 200% to 97,344 batches by FY2025.

KTC achieved commendable results in the 9MFY23, with RM15.9m in PAT, an increase of 17% compared to 9MFY22. As of 3QFY23, KTC's gearing ratio stood at 0.3x

Source: Rakuten Research - 15 Jun 2023

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