This article first appeared in The Edge Financial Daily on November 28, 2017

KUALA LUMPUR: Kim Teck Cheong Consolidated Bhd (KTC) expects to take another year to realise its investments in Sarawak and Brunei, while maintaining its current double-digit revenue growth momentum in the current financial year ending June 30, 2018 (FY18).

“It has taken us longer than we had expected, but we will get there. What we need now is to bring in more businesses to surpass our break-even point and profitability will follow,” its executive director Dexter Lau told reporters after the group’s annual general meeting yesterday.

“We also expect revenue to continue to grow by a strong double-digit. However, we are still in ‘investment mode’ for businesses in our two key areas — Sarawak and Brunei,” he added. In FY17, KTC saw its net profit fall 41% to RM1.09 million from RM1.85 million in the previous year, even though revenue grew 26% to RM428.48 million from RM341.13 million in FY16.

In the past two years, the consumer packaged goods (CPG) distributor has invested some RM20 million to beef up its warehousing facilities, logistic infrastructure and human resources in Sabah, Sarawak and Brunei to take advantage of opportunities as they arise, Lau said.

In March, KTC acquired a 60% equity interest in Grandtop Marketing Sdn Bhd for B$600,000, which is principally engaged in the business of distribution of CPG in Brunei.

He said the group plans to further invest in its infrastructure in FY18 — albeit with a smaller allocation — to take advantage of opportunities as they arise.

He added that KTC is currently in talks with five to six notable third-party CPG brands in Sabah and Sarawak, which may come on stream in FY18.

Lau also noted the downward pressure on the group’s profit margins due to cost-cutting measures at the retail level, in line with weaker consumer sentiment.

“Across Sabah and Sarawak, all the retailers are cutting down [costs] and beefing up their cash flow — so they are buying less. Many are also delaying payments to us,” he shared.

He also pointed to a mismatch between the flurry of tourists into Sabah and Sarawak and their spending.

However, Lau is confident that KTC’s strong foothold in Sabah and Sarawak can bring strong double-digit revenue growth this year, to help minimise impacts from squeezed margins.

As at end-June, the ACE Market-listed company operated 7,355 sales and distribution points spanning 84 districts across Sabah, Sarawak and Brunei, with a coverage of over 200 brands for 37 brand owners, according to its annual report.

The counter closed unchanged at 18.5 sen yesterday, with a market capitalisation of RM 94.4 million.