Catalist-listed Malaysian garment producer KTMG last month launched its own direct-to-consumer brand XCF and an $18 filtration face mask as its flagship product.

Unlike disposable masks that do not give much protection, KTMG’s mask has built-in proprietary technology that makes it comparable to the N95 face mask typically used by medical professionals.

The filtration mechanism of the mask allows it to filter out “99.9% of particles that are up to 0.075 micrometre in size”. This works out to be 75 nanometre which is much smaller than the 200–500 nanometre diameter of the Covid-19 virus particle.

“We want to use our experience in textile and apparel manufacturing by going directly to the consumer,” KTMG CEO Damien Lim tells The Edge Singapore in an interview. The way he sees it, both consumers and the company stand to benefit from the arrangement. Consumers will get to enjoy cost savings as KTMG manufactures the apparel directly and will cut out the middleman in the retail process, while KTMG will benefit from putting its manufacturing expertise to good use, explains Lim.

KTMG has been in the business of manufacturing apparel for US and European fashion retailers and labels for the past 30 years. However, not many consumers in Singapore and Malaysia are familiar with the Batu Pahat-headquartered company and the brands it works with.

“If you ask anyone from Singapore and Malaysia about us and who we make apparel for, chances are eight out of 10 would not have heard of us,” says Lim. This is because the brands KTMG works with typically order active and loungewear that are mainly sold in the US and Europe.

KTMG named XCF after its stock code on the Singapore Exchange. The move into direct-to-consumer retailing is part of KTMG’s plans to make a bigger name for itself in its markets and comes after it fulfilled a contract from the Malaysian Health Ministry to produce disposable gowns for frontline healthcare workers.

To fulfill the contract order, he had set up two production lines which have collectively produced over half a million gowns since April. Following the contract, Lim saw an opportunity to produce face masks which are facing a shortage globally.

Lim says the transition from gown to mask manufacturing was easy as the production line set up to manufacture gowns could be used to make face masks too without significant modifications. Since April, the company has used one production line to produce nearly half a million face masks.

For more stories about where the money flows, click here for our Capital section

Not a pasar malam

The lockdowns and movement control restrictions imposed by governments throughout the world to curb the spread of Covid-19 infections have altered the global retail landscape, with consumers increasingly shopping on e-commerce platforms instead of in bricks-and-mortar stores.

“Before Covid-19 happened, nobody would have predicted that there would be a day where everyone will have to shut down stores and not go to the shopping mall,” says Lim. He observes that many of his retailer customers from the US, Canada, Europe and the UK that primarily operate out of a physical store sawbusiness taking a hit. By contrast, customers who had gone digital were not as badly hit and continued to see sales.

In light of this, the XCF brand is retailing on a standalone webstore, which Lim hopes to position as a one-stop shop selling exclusive apparel that cannot be found at a regular retail joint or e-commerce hypermart.

“We are looking to build a brand that offers exclusive products for a group of customers that can afford premium quality, we don’t want to provide something useless or become like a pasar malam,” he stresses, using the example of a night market where goods are sold cheaply.

Lim has been driving traffic to XCF’s platform through advertisements on social media platforms such as Facebook and Instagram as well as endorsements by influencers. So far, “response has been positive” he says, adding that visitors to the platform have also been signing up as members.

Lim is looking to attract individuals aged between 24 and 45 as they are deemed to have higher spending power and are willing to invest in better quality apparel. To better cater to this group, the brand is looking to launch its own line of active and lounge-
wear, in line with consumer’s needs as they look for comfy clothes to wear while working from home.

Intelligent retail system

Lim intends for the XCF brand to complement KTMG’s existing manufacturing arm. This is supported by its facilities in Cambodia, which accounts for approximately 75% of the apparel it produces, and Malaysia, where the remaining 25% is produced. Across its facilities, the company produces approximately 1.6 million pieces of apparel such as T-shirts, pants, hoodies, jackets and sleepwear, every month.

Demand for these items has picked up in the past few months, following the easing of the lockdowns in several countries. “Recovery has been better than expected. Inventory is running out very quickly and retailers are chasing us every day, every week to replenish their stock,” says Lim. He adds that customers are even willing to pay for air freight, which has become more costly amid global supply chain disruptions, so they can receive their goods faster. In contrast, the time taken for fast-moving items such as T-shirts typically takes around 45 days while other retail items take slightly longer at around three months. However, KTMG’s customers tend not to wait for their inventory to run out before stocking up. “The retail system we have now is very intelligent and sophisticated and customers make orders early based on projections,” he says. “Floor space is expensive and retailers do not want to waste it by putting something that is not sellable”.

The smart retail system is able to give specifics on tastes and preferences such as size, colour and design of the consumers that visit a certain store. For instance, consumers from the southern, northern and central regions of the UK have different tastes in terms of style and colour preference, says Lim.

Lim finds the retail system helpful in highlighting to KTMG what its customers are looking for. This knowledge has led it to introduce sustainable fabrics such as recycled polyester fabric and sustainably-sourced cotton.

Aside from being customer-centric, Lim believes that KTMG’s orderbook will benefit from companies looking to shift their production base outside of China, so as not to be caught between the trade war it has with the US. He has already received a few inquiries from international buyers and expects this to accelerate over the next two to three years.

Healthier financials
KTMG was listed on May 13, 2019, following the reverse takeover (RTO) of Lerno Bio-chem, one of the many S-chips that ran aground after listing on the SGX. Year to date, shares of the thinly traded KTMG, have closed flat at 20 cents on Nov 18, giving it a market value of $34 million.

In 1H2020 ended June, KTMG posted revenue of $36 million, down 30.4% from a year ago as production was disrupted during the lockdown in Malaysia.

However, it managed to achieve earnings of $294,000, a reversal from the $2.6 million loss a year ago. This was due to substantial government relief, lower operating costs in line with lower volume, stable operating mar- gins and the absence of one-off RTO expenses.

As of end June, cash and cash equivalents stood at $4.9 million, up from the $2.6 million it had at the end of June 2019.

While Lim is not able to say if KTMG’s FY2020 results will be better than FY2019’s, he is optimistic that the company’s efforts will bear fruit. “Since 2002, people have been saying that the garment industry is a sunset industry and it is not very exciting,” says Lim. “But we hope to change this through XCF.”