WFH norm brings unique F&B stock closer to heartlanders
There is a certain attraction to being a rarity. With food court operator Koufu’s privatisation bid, Kimly will become the only F&B operator with a focus in the heartlands, where business remains resilient amid the pandemic. CGS-CIMB analyst Kenneth Tan, who has a “buy” call and 56 cents target price on the stock, notes that Kimly is currently trading at an undemanding valuation of about 13 times FY2022 P/E (–1 standard deviation from fiveyear historical mean), a significant discount to Koufu’s privatisation valuation of 16 times P/E.
Even as more companies allow their employees to return to their offices, work-fromhome (WFH) arrangements have also become the new norm for many. Kimly’s extensive network of coffee shops in the heartlands gives it a “captured” pool of customers in the form of residents, whether dining-in or takeaway.
Tan expects to see sequential earnings recovery for the coming 1HFY2022 ending March 2022, with the easing of dining restrictions since November last year. He notes that Kimly’s valuation is underpinned by its net cash of some $71 million, equivalent to 14% of its market cap. With this funding, Tan expects Kimly to maintain an expansion pace of three outlets or so a year while maintaining a dividend yield of 4%.
Jarick Seet of RHB similarly expects a strong earnings momentum continuing from Kimly’s FY2021 ended September 2021. For the year, revenue was up 13.2% y-o-y to $238.6 million but thanks to higher margins, earnings were up by 55.7% y-o-y to $39.3 million.
The company has been able to enjoy broadbased growth from higher volumes. Besides owning the coffee shops and earning rental income from letting out the food stalls, Kimly operates some of the food stalls within these coffee shops as well, selling “economical rice” and dim sum. And of course, as owners of the coffee shops, they also operate the traditionally high-margin business of selling drinks. The popularity of food delivery has also helped sales.
Besides organic growth from these businesses, Kimly has been active in M&A activities. Specifically, last October, Kimly completed the acquisition of a 75% stake in Tenderfresh, a Halal-certified food business.
“Going forward, with the Tenderfresh acquisition, [Kimly’s] bottom line and profitability should increase further. We expect the company to continue expanding organically, by opening more outlets and refurbishing existing ones,” writes RHB’s Seet in his Jan 18 report.
DBS Group Research, which has a “buy” on Kimly with a target price of 50 cents, is also positive on the Tenderfresh acquisition. “Leveraging Tenderfresh’s position in the Halal market, Kimly will be able to reach out to the 14% Muslim population in Singapore. Synergies expected from the acquisition include cross-selling and streamlining of processes,” says DBS analyst Paul Yong.
Meanwhile, analysts are unfazed by Kimly’s latest commercial affairs department (CAD) case, which saw its executive chairman Lim Hee Liat and its executive director Chia Cher Khiang being charged with Kimly’s failure to notify market regulators that its acquisition of Asian Story Corporation was an interested person transaction.
The way Seet sees it, this ordeal will not majorly impact the company’s operations and he views it as a positive for Kimly as the certainty of the ordeal removes the overhang of this case and allows the company to move forward with its strategic plans. “Lim, the majority shareholder of the company, will likely continue to benefit the group with his expertise and experience,” adds Seet. —