It all began with a small sundry shop
It can be said that most, if not all, entrepreneurial stories have humble beginnings.
For Kim Teck Cheong Consolidated Bhd (KTC), one of the first tier provider of market access and coverage in distribution of consumer packaged goods (CPG) in East Malaysia, it all began in 1938 when Datuk Lau Yeong Ching first started a small sundry shop in Sabah.
In an exclusive interview with BizHive Weekly, group executive director Dexter Lau revealed that his aforementioned late grandfather was an ambitious and disciplined man who practiced and preached strong principles of integrity and ethics; as the well-respected man he was and in business.
“Kim Teck Cheong’s business philosophy of achieving business success and continuity through integrity and ethical business practices that KTC was built upon since its establishment, is engraved in our company name – Kim (prosperity), Teck (moral principles) and Cheong (expansion),” Dexter told in an exclusive interview.
According to Dexter, it was in 1946 when the KTC family-run business moved on to expand and open up a departmental store in Kota Kinabalu.
Dexter highlighted that in 1967, KTC’s current group managing director and son of the late Yeong Ching – Datuk Lau Kok Sing joined the business and has been instrumental to the business direction and growth of the group.
“In 1975, the company incorporated KTC Sdn Bhd and diversified its business into the provision of market access and coverage of CPG of third party brands – initially with personal care products in Kota Kinabalu, Sabah only,” he said.
“From 1978 onwards, the company expanded quite rapidly into the distribution industry with an increasing portfolio of prominent third party brands and extended market access across East Malaysia.”
Dexter himself joined the family business in 2003 upon graduation from university.
He explained that he saw the need in the organisation to have better stipulated management processes and compliances, so as to better manage the company’s direction, efficiency and proper control of the company as it grows.
“The business had been around for over 70 years and I understood that branding was an imperative element that contributed to the success of the company,” he said.
“Hence, we saw a need to also rebrand the company and transform it into a dynamic and progressive organisation that attracts and utilises a high calibre work force and business infrastructure.”
“It also meant in order to maintain our competitiveness and operation strength we had to keep up with today’s advancing technology and management structures – for example information technology (IT) systems and the cloud platform.”
Strong distribution game
On how KTC ventured into the distribution business, Dexter highlighted that his father, Kok Sing, made this strategic move – when he observed market opportunities and growth potential during the 1970’s amidst a slowing economy.
At that time, Kok Sing had realised that he had to devise a new business strategy in order to overcome the economic challenges and sustain the company’s long-term growth.
“Armed with a new game plan, he converted the then prominent retail outlet and departmental store to a fast moving consumer goods (FMCG) distribution and trading business that included logistic management,” Dexter said.
“Datuk Lau’s bold move paid off and business expanded beyond Kota Kinabalu to the towns of Tawau, Sandakan and Labuan.”
Kok Sing also managed to secure several major distributorships, that paved the way for KTC to become the success that it is today.
KTC mainly distributes products that are staples in every household such as personal care products, household products, babycare products, food and beverage (F&B) products and over the counter (OTC) drugs and health supplements.
“Hence, these are inelastic products that are less susceptible to gradual increases in prices and are consumed regardless of the economic environment,” Dexter said.
“The economy has affected consumer spending over the last year and has indirectly reflected a slight slow down to our sales as a group; but with that said our business model with strong independent relations directly with brands owners enables us to mitigate and stabilize these scenarios across the panel and maintain profitability.”
KTC is currently distributing over 200 third party brands from approximately 40 brand owners. Some of the more prominent brands that the group distributes include Coca Cola, Horlicks, L’Oreal, Kimberley Clarke, Procter and Gamble (P&G), Pantene, Shiseido, Tefal and many more.
Today, KTC has 7,087 distribution points covering 84 districts in East Malaysia and 21 distribution centers and warehousing facilities.
KTC venturing into manufacturing
Recently, KTC took it upon itself to venture into its own brands and bakery products as the group saw it as a good business opportunity that will enable it to provide the products that it does not already have.
According to Dexter, the products under KTC’s brand complements the group’s product portfolio whilst at the same time it is focused on items that are not so brand sensitive within the targeted consumer market.
KTC’s manufacturing is purely focused in bakery products under the group’s own house brand Creamos.
The entire process from dough pressing, moulding, slicing, filling and automated packaging are carried out at the group’s own facility in Kota Kinabalu.
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TC’s current manufacturing facility sits on 1.87 acres of land with a total built up area of approximately 20,596 sq ft.
The group’s bakery products include bread rolls (with flavoured cream fillers), sandwich loaf, chiffon cupcakes, soya milk and cream crackers.
KTC’s bakery products are distributed and sold in Sabah and Labuan, which are made available at various retail outlets, hypermarkets, supermarkets, sundry shops, convenience stores, petrol kiosk, Chinese medical halls and school canteens.
“We do not have any concrete plans to expand or add new manufacturing facilities at this time,” Dexter affirmed.
In addition to Creamos, KTC also has Orie, which is the group’s own brand of CPG. The group basically sources for finished products from external manufacturers locally and overseas and then pack these under its own brand Orie.
KTC currently carries 39 products under its Orie brand which consists of beverages, chilled, frozen and dry foods.
In its Annual Report for 2016, it was revealed by KTC that the strategy in establishing its own brand of CPG is to optimise the group’s existing network and to complement its existing range of products that it is not distributing for third party brands owners.
KTC’s CPG brands are currently distributed in Sabah, Sarawak and Labuan.
Expansion mode on
KTC is recognised and acknowledged for its high level of efficiency and productivity testified by the group’s long standing working relationships with industry giants such as P&G (over 20 years), Wipro Unza (over 20 years) amongst others.
Dexter noted that this led KTC to become a preferred and ambitious choice of career within the industry, as well as an ideal business partner to suppliers and customers nationwide.
“Being one of the top first tier distributors in Sabah, our competitive edge lies in our capability in providing coverage for wide range of products and recognisable brands, our wide distribution network, established track record, economies of scale and the collective experience of our directors and management personnel,” he enthused.
KTC has to date, expanded beyond Sabah to its neighbouring state, Sarawak and is taking a global step of outreaching to Brunei Darussalam.
According to Dexter, expanding into Sarawak was a part of KTC’s long term business plans to further extend the group’s presence and strengthen its distribution network.
“After doing the necessary homework and were confident that we were able to replicate our success in Sarawak, KTC acquired KH Enterprise Sdn Bhd (now known as KTC Sarawak) in Sibu, Sarawak in September 2013.
“Today, we have three distribution centres in Sarawak itself to support our business operations,” he said.
KTC’s expansion plans that the group had set out for during its listing have been progressively realised, Dexter affirmed.
He emphasised that for now, KTC needs to focus on its business executions and continue in delivering quality and efficiency with the group’s operations and client servicing.
“The management is also working on evaluating and rationalising our product portfolio to ensure that we are maximising our resources and profit generation,” Dexter said.
Given the group’s recent ventures into Sarawak and Brunei and acquisition, KTC is now focusing on the operations there first and ensuring its success.
“Additionally, we see that there are still plenty of low hanging fruits within East Malaysia and Brunei that we can capitalise on,” he added.
Since its listing in November 2015 to date, KTC has increased capacity in five key areas in the region.
In Sarawak alone, the group has increased Sibu capacity from 8,000 square feet (sq ft) to 35,000 sq ft, opened up a 10,000 sq ft facilitiy in Bintulu, increased capacity in Miri from 10,000 sq ft to 43,000 sq ft and increased the square footage in Kuching from 7,000 to 40,000.
Over in Sabah, KTC expanded capacity in Kota Kinabalu from 105,000 sq ft to 150,000 sq ft.
Dexter pointed out that throughout the calendar year of 2016, KTC has successfully completed the acquisition of Popular Trading (Borneo) Corporation Bhd (Popular Trading) while the proposed acquisitions of Trans Paint Sdn Bhd (Trans Paint) and Grandtop Marketing Sdn Bhd (Grandtop Marketing) is expected to be completed by the year end.
Kok Sing remarked in the group’s annual report 2016 that the completed acquisition of 100 per cent quity interest in Popular Trading May 2016 was a synergistic buy for KTC as the former complemented and further cemented the group’s existing distribution business in East Malaysia thereby allowing KTC to further expand into Sarawak.
“Popular Trading brings 48 years of solid industry track record in the line of distribution and wholesale trading,” he opined.
He added that the seamless merger of both the companies’ business infrastructure and resources provided immediate enlargement to KTC’s business scale and market share in Sarawak.
As for Trans Paint, KTC had entered into a share sale and purchase agreement in September 2016 in relation to the acquisition of 100 per cent equity interest in Trans Paint which is the sole registered and beneficial owner of a warehousing facility located in Kuching.
Once the acquisition is completed, KTC will use the warehousing facilities to support the group’s expanding operations in tandem with its business growth in Sarawak.
“This additional warehousing facilities and office would have a built-up area of approximately 39,000 sq ft and 6,000 sq ft respectively,” Kok Sing said.
On another note, Kok Sing revealed that the group had entered into an agreement which enabled it to hold 60 per cent equity interest in Grandtop Marketing, an existing distributor of CPG covering a range of F&B products, personal care and household products in Brunei to address opportunities in this market.
Upon completion, Grandtop Marketing will be KTC’s first business venture outside of East Malaysia.
“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,” he said.
“Grandtop Marketing not only extends the KTC’s business footprint outside of East Malaysia but it also adds multiple brands to our brand portfolio of Milo, Kit Kat, Maggi, Nestle, Crunch, Silky Girl, Revlon, Ngan Yin Cap Tangan and many more.”
Moving ahead, KTC is optimistic that the group can maintain a favourable and positive performance with its newly appointed distribution contracts from SCGM Bhd (SCGM), Anakku Sdn Bhd (Anakku), Marigold and Procter & Gamble (Malaysia) Sdn Bhd (P&G).
“The extended distribution contract to Sarawak and Brunei with P&G has placed KTC as the largest partner in the region,” Dexter said, adding that KTC has been working with P&G for over 30 years and has been distributing its products in Sabah and Labuan.
Performance over the past year
Despite there being no comparative figures from previous financial years given that this is KTC’s first consolidated results being announced in compliance with the ACE Market Listing Requirements of Bursa Malaysia, the group managed to record a revenue of RM341.13 million and a profit after tax of RM1.93 million for the financial year ended (FYE) June 30, 2016.
According to Kok Sing’s statement in the annual report, KTC’s main revenue stream is derived from the distribution of third party brands, which represented RM326.43 million or 95.69 per cent of the group’s total revenue.
“This is followed by the distribution of our own brands, which accounted for RM8.16 million or 2.39 per cent of the group’s total revenue,” he said.
“A small portion of the group’s business is attributed by the manufacturing of bakery products, which accounted for RM6.54 million or 1.92 per cent of the group’s total revenue.”
Over the 12-month period, Sabah contributed a large proportion of KTC’s revenue with RM299.02 million, representing 87.66 per cent of the group’s total revenue while Sarawak accounted 7.48 per cent and the remaining 4.86 per cent was from Labuan.
On the other hand, KTC’s reduced profit in FYE June 30, 2016 was attributable to the listing expenses incurred in relation to the group’s Listing and increased expenditure on business infrastructure and warehousing facilities.
“However, our group is now in a better position for profit growth for the financial year ending June 30, 2017 with these infrastructure in place,” Kok Sing stated.
Key highlights since listing on Bursa
January
• KTC entered into a MOU on January 11, 2016, to acquire 100 per cent equity interest in Popular Trading.
• KTC entered into a MOU on January 21, 2016, with SCGM who was desirous to appoint the group as the sole distributor of SCGM’s ‘Benxon’-brand food packaging and plastic cups to food and beverage retailers and manufacturers in the East Malaysia and Brunei markets.
• KTC entered into a conditional sale of shares agreement on January 29, 2016, to acquire 100 per cent equity interest in Popular Trading.
February
• Subsequent to the KTC-SCGM MOU signing on January 21, KTC’s board of directors announced on February 22, 2016 that subsidiaries Kim Teck Cheong Distribution Sdn Bhd (KTC Distribution) and Kim Teck Cheong (Sarawak) Sdn Bhd (KTC Sarawak) had on February 20, 2016 entered into the distribution agreements with Lee Soon Seng Plastic Industries Sdn Bhd (LSSPI), a wholly owned subsidiary of SCGM, respectively to undertake the distribution and sale of finished goods products manufactured and sold by LSSPI in Sabah and Sarawak respectively on the terms and conditions as stipulated in the agreements.
• On February 29, 2016, KTC entered into a MOU with Yung Kong Company Bhd (Yung Kong) with the intention to acquire 100 per cent equity interest in Trans Paint which is the sole registered and beneficial owner of a property such warehousing facilitiy located in Kuching.
March
• KTC entered into two conditional agreements on March 16, 2016:
a) conditional share purchase agreement with Phang Lee Yen, Lim Sok Lan and Woo Chung Heng to acquire a total of 80,000 ordinary shares of B$1.00 each in Grandtop Marketing for a consideration of B$80,000 (equivalent to approximately RM238,464).
b) conditional share subscription agreement with Grandtop Marketing to subscribe for 520,000 new ordinary shares of B$1.00 each for a consideration of B$520,000 (equivalent to approximately RM1,550,016). The proposed acquisition and proposed subscription will enable KTC to collectively hold 60 per cent equity interest in Grandtop Marketing.
• Further to the announcement made on March 16, 2016, the board of directors announced on March 18, 2016 that the total purchase consideration of B$600,000 (equivalent to approximately RM1,788,480) for proposed acquisition and proposed subscription will be fully satisfied in cash by the company. The purchase consideration of B$80,000 (equivalent to approximately RM238,464) for the proposed acquisition will be paid in one lump sum within three months from the date upon the fulfilment of the conditions precedent of the share purchase agreement.
May
• Reference was made to the company’s announcement dated January 29, 2016 on May 30, 2016 that unless otherwise defined, the definitions set out in the announcement shall apply herein. KTC’s board of directors announced on May 30, 2016 that all the conditions precedent of the agreement had been fulfilled and the acquisition completed. Accordingly, Popular Trading became a wholly-owned subsidiary company of KTC.
June
• KTC Sarawak, an 80 per cent equity owned subsidiary of KTC, entered into a distributorship agreement on June 7, 2016, with Anakku. Anakku agreed to appoint KTC Sarawak as its non-exclusive distributor for the sale and distribution of all hardline accessories which include baby feeding, grooming and teething accessories and toys; fast moving consumer (FMCG) products such as wet wipes, toiletries and napkins; and softline products such as apparels and other wear accessories. The group noted that products bearing the trademarks of Anakku, Disney, Doraemon, Minicare, Family Essential and other brand names distributed by Anakku included in the aforementioned items, will be advised to KTC Sarawak from time to time.
• KTC’s wholly-owned subsidiary KTC Distribution and KTC Sarawak had on June 13, 2016 entered into separate distributorship agreements with Cotra Enterprises Sdn Bhd respectively wherein the supplier granted to the distributors the right during the continuance of the agreements to purchase for resale of MARIGOLD UHT Asian Drink, MARIGOLD UHT Fruit Drink, MARIGOLD UHT 100% Fruit Juice, MARIGOLD UHT Milk and MARIGOLD Canned Milk in Kudat, Kota Kinabalu, Beaufort and Miri based on the terms and conditions as stipulated in the agreements.
July
• Board of directors announced on July 4, 2016 that KTC’s wholly-owned subsidiary, AMDA Marketing (Sabah) Sdn Bhd changed its name to Kim Teck Cheong (Borneo) Sdn Bhd (KTC Borneo) with effect from June 27, 2016 as stipulated in the Certificate of Incorporation on Change of Name of Company issued by the Companies Commission of Malaysia, which was received by the group on June 29, 2016.
August
• KTC Borneo had on August 1, 2016 received the appointment letter from P&G who agreed to appoint KTC Borneo as its distributor in Sarawak with effect from October 1, 2016.
September
• KTC had on September 7, 2016 entered into a share sale and purchase agreement with Yung Kong to acquire 100 per cent equity interest in Trans Paint which is the sole registered and beneficial owner of a property i.e. warehousing facility located in Kuching, Sarawak for a purchase consideration of RM2,535,482 to be funded via the initial public offering proceeds.
October
• KTC Borneo and P&G had previously entered into a distribution agreement on September 17, 2015 wherein KTC Borneo was appointed as a distributor of P&G for its products in Sabah with effect from July 1, 2015 until June 30, 2017. It was announced on October 4, 2016 that on September 30, 2016, KTC Borneo and P&G entered into a supplemental distribution agreement to expand the distribution territories to include Sarawak and Brunei.