Sabah’s quiet ascent in the consumer market

SABAH may soon emerge as Malaysia’s next consumer growth frontier. The state, better known for its beaches and Mount Kinabalu climbs, is quietly attracting renewed investor interest – and this time, the appeal goes far beyond tourism.

Analysts who recently visited the state say Sabah’s story is less about brand battles and more about logistics supremacy.

According to Kenanga Research, which conducted a detailed study trip to Kota Kinabalu and several other districts, “distribution is destiny in Sabah”. Geography, the report notes, defines who wins and who fades in this sprawling, under-penetrated consumer market.

The research team visited 11 key players spanning consumer staples, distribution, infrastructure and investment, including Life Water Bhd, QL Resources Bhd, Lay Hong Bhd, Sabah International Dairies Sdn Bhd (SiD), Harrisons Holdings (M) Bhd, Kim Teck Cheong Consolidated Bhd (KTC), Gardenia Bakeries (Borneo) Sdn Bhd, Azam Jaya Bhd, Qhazanah Sabah Bhd, Jesselton International Sdn Bhd and the Malaysia-China Chamber of Commerce.

Kenanga Research’s analysts found a clear theme running through their meetings – Sabahans are value-seeking, pragmatic consumers who trade down when necessary but will still pay for quality in staples. The report summed it up neatly: “If Spritzer is premium pride in Peninsular Malaysia, then Life Water is the pride of Sabah, serving affordability without compromising margins.”

Water: The everyday champion

Kenanga Research’s first stop was Life Water, the homegrown bottled-water producer that commands more than half of Sabah’s bottled-water market.

Walking through the company’s plants in Kota Kinabalu and Sandakan, the brokerage observed a lean operation running at 60% to 70% utilisation, with annual production capacity of about 626 million litres.

The company’s product line-up – including the K2, Sasa and Sabah Water brands – is anchored on accessibility. Its slogan, emblazoned on a meeting-room wall, reads “Quality Affordable Beverages”.

Life Water’s managing director Liaw Hen Kong told the visiting team that affordability remains key: “Our goal is to provide quality products that people can reach for daily, without needing to choose between price and quality.”

Kenanga Research’s report notes that Life Water offers “double the volume at roughly the same retail price” as Spritzer.

Both are typically priced around RM1.30 per bottle, but Life Water’s 500ml product directly targets mass-market consumers, in line with Sabah’s average disposable income, which remains about 30% below the national mean.

Life Water operates at higher net margins – around 17% – thanks to lower labour costs, minimal marketing expenditure and tight operational control. The brokerage observed that “supply, rather than demand, is the bottleneck for now”, as capacity upgrades continue. New lines in Sandakan and Keningau are expected to lift volumes by another 28% by 2027.

Still, operating in Sabah is not without challenges.

Water and electricity supply interruptions are frequent, but the company’s multi-plant set-up provides resilience.

Eggs and poultry

Kenanga Research caught up with two major poultry producers with deep Sabah roots – QL Resources and Lay Hong. Both painted a steady demand outlook.

QL Resources produces about 4.5 million to five million eggs per day nationwide, with roughly 1.5 million coming from Sabah and Sarawak. Of that, around 35% are branded eggs – a striking contrast to the 10% to 11% branded share in Peninsular Malaysia.

Lay Hong, meanwhile, produces three million to four million eggs daily, with about one million from Sabah.

The stronger branding penetration in Sabah and Sarawak signals an interesting dynamic.

According to Kenanga Research, branded eggs enjoy far deeper penetration here, reflecting both consumer preference and a less crowded competitive field.

Lay Hong group executive director Datuk Yap Chor How highlights that demand remains firm: “Production is growing steadily with no signs of oversupply.”

He also points to the group’s downstream strength through its G-Mart retail chain, which operates 25 stores and generates about RM150mil in revenue, giving the company additional reach in rural districts.

At QL’s Kota Kinabalu facility, director Kalvin Chia and investor relations manager Jayden Liew outline ongoing conversion work at its surimi line, which should expand the group’s processed seafood capacity by late 2025.

The company’s surimi output currently stands at around 4,000 tonnes annually.

The poultry conversation, however, always circles back to one core truth: logistics.

Distribution costs in Sabah are roughly double those in the Peninsula, making route density and local partnerships crucial. As Kenanga Research summed up, “The critical success factor here is still logistics and distribution – something Peninsular players entering the market should take heed of.”

Local loyalty runs deep

Among dairy products, Dutch Lady may dominate in the west, but SiD remains the local favourite. Established in the 1980s under a state initiative to supply milk for the Sabah School Milk Programme, SiD still dedicates around 70% of its production to schools.

During a plant tour, chief operating officer Raymond Chiew told Kenanga Research that the company’s four production lines are running at about two-thirds capacity.

Annual output stands near 60 million litres, mostly in ultra-high-temperature (UHT) packs. On supermarket shelves in Kota Kinabalu, SiD’s milk was seen side by side with Dutch Lady’s – though priced about 10% lower.

Kenanga Research observed that while Sabah produces only eight million to 10 million litres of fresh milk annually – around a quarter of Malaysia’s total – much of its retail shelves are still filled by Peninsula-sourced UHT products, suggesting capacity gaps and room for expansion by national brands.

Still, local loyalty runs deep: “Having seen both the plant and the shelves, it’s easy to see why SiD’s long-standing presence keeps it rooted in the community,” Kenanga Research wrote.

In a state defined by distance, distributors like Harrisons and KTC effectively serve as market gatekeepers.

Harrisons, which has operated in Sabah for over a century, runs nine branches and 23 warehouses, covering more than 70 towns.

KTC, nearly 90 years old, is expanding rapidly with a 0.5 million sq ft warehouse under construction at the Kota Kinabalu Industrial Park, scheduled for completion in 2027.

Harrisons Sabah managing director Ang Lian Wal notes that consumer demand is recovering gradually post-boycott but remains price-sensitive. He says: “Success in this line hinges on reach, execution and long-standing relationships.”

Kenanga Research views distribution scale and efficiency as the ultimate differentiators in Sabah.

Despite operating on thin margins, Harrisons’ larger footprint gives it a valuation premium over KTC. Kenanga Research highlighted: “In Sabah, distribution isn’t just a back-end function – it’s the strategy.”

Infrastructure – the hidden catalyst

Beneath Sabah’s consumer story lies another catalyst: infrastructure. The federal government’s Pan Borneo Highway, a multi-billion-ringgit project to upgrade the state’s major trunk roads, is steadily improving connectivity between key cities.

Phase 1 spans 706km and is slated for completion by late 2026, while the mountainous Phase 2 – through Kundasang – should follow by 2029.

Qhazanah Sabah Bhd, the state government’s investment arm, is complementing this with renewable-energy and industrial projects, including the RM60mil Tawau Q-Solar initiative and the RM62mil Q-SME Halal Industrial Park in Kota Kinabalu Industrial Park, or KKIP. Meanwhile, construction firm Azam Jaya has secured four packages of the Pan Borneo Highway and recently won a RM121mil contract to upgrade Tawau Airport.

Kenanga Research notes that these developments create a “substantial multiplier effect” – improving logistics, spurring jobs and widening market access for consumer companies.

Put together, the findings from Kenanga Research’s field trip paint Sabah as a high-potential, logistics-driven consumer market – under-served yet loyal, challenging yet rewarding.

With rising infrastructure investment, expanding distribution networks and growing local consumption, the state is poised to draw greater investor attention. Or, as the research team put it succinctly: “In Sabah, the consumer story doesn’t start on the shelf – it starts on the road.”