KBB Resources Berhad - TA Online

TA Securities Bhd
20 Feb 2004
N E W L I S T I N G
TA SECURITIES BHD
Participating Organisations of
Malaysia Securities Exchange Berhad
RM1.85 (+105.5%)
Fair Value
KLCI 858.66
SHARE INFO
Stock Code
KBB
Listing
2nd Board
Enlarged Share Cap (m) 80.0
Market Cap @ RM1.85 (RMm) 148.0
Par Value (RM) 0.50
Public Issue (m) 12.0
Issue Price (RM) 0.90
Estimated Free Float (%) 32.90
Oversubscription (%) 37.44
Listing Date
24-Feb-04
Major Shareholders (%)
Ang Family (50.1%)
Dr Yap Tatt Keat (17.0%)
RATIO & ANALYSIS
NTA/shr (Post IPO) (RM) 0.71
Price to NTA (x) 2.6
ROE - 03 (%) 20.4
- 04 (%) 23.2
ROA - 03 (%) 10.6
- 04 (%) 12.1
Net Gearing (x) 0.2
UTILISATION OF IPO PROCEEDS
(RM m)
Estimated listing exercise 1.5
Repayment of borrowings 13.2
Total 14.7
20 Feb 2004
Sector : CONSUMER Bloomberg : KBB MK For Internal Circulation Only
KBB Resources Berhad
Largest Integrated Vermicelli Manufacturer in Malaysia
KBB Resources Berhad (KBB) is primarily engaged in the
manufacturing and marketing of vermicelli in Malaysia. Founded 1n
1984, KBB is the market leader in the domestic market with its 8 inhouse
brands. We believe that KBB's in-depth knowledge and expertise
in the vermicelli industry make it more competitive than other players.
Moreover, KBB's strengths in distribution network and customer
relationships also place it in a better position than other competitors.
Hence, we value KBB at RM1.85 based on 14.6x FY04 PER which is
20% premium over the average earnings multiple of 12.3x for the
consumer sector. This gives a potential 105.6% upside from the issue
price of RM0.90.
Company Background
KBB manufactures and markets vermicelli under 8 in-house brand names in
Malaysia. The company was founded in 1984 by Ang Cho Teing and Tai
Chok Ping under the name of Bersatu Kilang Bihun in Tasek Gelugor, Penang.
KBB distributes its products via its 4 main warehouses in Peninsular Malaysia.
As the largest integrated vermicelli manufacturer in Malaysia, its production
facilities are located in Baling (Kedah), Tasek Gelugor (Penang) and Sibu
(Sarawak).
Strong Customer Base of 3,000 Customers
KBB has 19 years of experience in the vermicelli industry. It has established
a strong customer base with 3,000 customers. The group has maintained
over 14 years relationships with its top ten customers. KBB's customer base
is well diversified with its ten major customers accounting for about 45% of
FY02 group turnover. The broad customer base results in steady earnings
flow for the group. In addition, the largest customer only accounted for less
than 6% of total group turnover, which minimises the risk of over-dependence
on a small number of customers.
EARNINGS SUMMARY (RMm)
YE 31Dec 1999 2000 2001 2002 2003 2004F
Revenue 30.2 32.1 46.9 54.7 67.3 71.5
Pretax Profit 5.4 6.7 7.7 8.0 10.8 12.1
Net Profit 5.6 5.8 5.7 6.9 8.9 10.1
EPS (sen) 7.0 7.3 7.1 8.6 11.2 12.7
EPS Growth (%) - 4.4 -2.4 20.9 30.2 13.5
PER @ RM1.85 26.6 25.5 26.1 21.6 16.6 14.6
DPS (sen) - - - - 1.8
Div. Yield (%) - - - - 0.9
EPS based on 80m enlarged shares
Analyst
Cheong Kooi Seong
E-*
kscheong@ta.com.my
( 20721277 ext 1674
TA Securities Bhd (16029-V)
Menara TA One, 22 Jalan P Ramlee,
50250 Kuala Lumpur. Malaysia
Tel : 603 - 2072 1277. Fax : 603 - 2032 5048
[ 1 ] KBB Resources Berhad

TA Securities Bhd
20 Feb 2004
Mainly For Local Market
Some 92.5% of KBB's revenue is generated by its 8 in-house brands with
the remaining 7.5% from Original Brand Marketing (OBM). Other newly
developed products such as instant bihun and nutritious bihun products made
with brown rice, tomato and yam will also play a role in profit contribution in
the future.
Market Leader With Long History
KBB is among the well-known manufacturers of vermicelli with more than 19
years history in Malaysia. According to ACNielsen's market research reports,
KBB market share is estimated at 20 - 30% in the domestic bihun industry.
Its strategically located factories and warehouses ensure wide market
coverage in Peninsular Malaysia. Its factory in Sibu also provides the group
with a competitive foothold in the East Malaysia market as well as potential
opportunities to tap into the Brunei and Indonesia markets. The group's current
output is 48,400 tonnes after its recent expansion with average utilisation
rate of 53%. Average annual sales from FY98 to FY02 for KBB was RM38m
compared with the average output per player of RM2m in the noodles industry.
Industry Outlook and Competition
According to ACNielsen, in 2000, the bihun, noodles and related products
industry comprised 270 local manufacturers with an estimated annual gross
output of more than RM600m. KBB believes that its bihun and laksa
accounted for RM200m or one-third of the annual gross output of the noodles
industry. The past 5 years have seen the consolidation of local bihun and
laksa manufacturers from 75 to 10 - 15 players currently. According to the
management, the closest competitor (not listed) has annual turnover of about
RM20m to RM30m of which bihun and laksa only contributed a small amount.
Therefore, it has no close rivals in the market. Although the group may face
competition from Thailand and China producers, their bihun is of different
quality and priced at a 20% premium to the Malaysian bihun due to freight
charges.
Success So Far
PBT before exceptional gains has grown at a compounded 14.3% over FY98-
02. The pretax margin eased from 17.9% in FY00 to 14.7% in FY02 due to
the higher depreciation costs from commissioning of new plants. Overall,
KBB's pretax margin has remained at 15 - 18% levels for the past 5 years. In
addition, the group is financially healthy. As at July 2003, net gearing is at a
comfortable 0.2x while the group's annual operating cashflow is expected to
exceed RM10m.
Overseas Exposure
Given the resilient growth in the local vermicelli market, KBB intends to
extend its market leadership to foreign shores such as Indonesia, Singapore,
Brunei, Philippines, EU and US in the medium term while expading its local
market share. Future growth in the next few years is likely to come from its
overseas ventures. The management expects exports to account for 10% of
the total group sales over the next 3 years.
Fair value at RM1.85
For valuation purposes, we are fairly valuing KBB at a 20% premium to average
PER of selected staple food manufacturers such as Mamee Double Decker
Berhad, Ajinomoto Malaysia Berhad, Silver Bird Group Berhad and Apollo
Food Holdings Berhad. This 20% premium is to reflect KBB's market
leadership in its segment. Based on the resulting PER multiple of 14.6x, we
are fairly valuing KBB at RM1.85. This offers an ample upside potential of
105.6%.
[ 2 ] KBB Resources Berhad