Despite reporting lower earnings for its latest 1HFY2022 ended March, Kimly is still a stock to watch, according to analysts.
For its first half period, Kimly’s earnings dipped some 14.7% y-o-y to $18.5 million, due to higher administrative expenses, as it had to incur several costs for its newly acquired Tenderfresh business. This brought earnings per share (EPS) to 1.49 cents, down from 1.83 cents last year on a fully diluted basis.
Revenue was 27.9% higher y-o-y at $156.9 million, thanks to higher food retail revenue, but offset by the lower revenue for Kimly’s outlet management and outlet investment business segments, as footfall declined in most of the group’s coffeeshops amid the country’s economy reopening.
An interim dividend of 0.56 cents per share has been declared, which will be paid out on or around July 15.
See: Kimly reports 14.7% lower earnings of $18.5 mil for 1HFY2022; proposes interim dividend of 0.56 cents
DBS Group Research is keeping its “buy” call on Kimly with a target price of 50 cents, as analyst Paul Yong likes the stock for its undemanding valuation of 12x FY2022 PE, about 0.5 SD below its five-year mean of 15x, as well as the stock’s strong profit growth, cash flow and dividend yield.
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Yong notes that the group reported an uplift in earnings for its food retail division, thanks to its latest Tenderfresh acquisition, which was completed last year. This acquisition has added 14 concepts and 41 food stalls to Kimly’s portfolio and according to Yong, should start contributing earnings of about $7 million (representing 17% of total earnings) in FY2022.
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. “We project a 30% revenue CAGR in FY2021-2023 for the food retail segment,” adds Yong.
While the analyst notes that there is a limited supply of long-term leasehold coffeeshop properties for sale or lease, there could be further upside to his estimates if Kimly can deliver more acquisitions by using its strong balance sheet to fund inorganic growth.
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On the other hand, CGS-CIMB Research has a less upbeat stance on Kimly, as it has downgraded its call to “hold” from “add” with a lower target price of 41 cents from 54 cents previously.
Lead analyst Kenneth Tan says, “We see tailwinds subsiding due to Singapore’s significantly-relaxed Covid-19 measures since April. Workers return to office could impact Kimly’s footfall.”
With the bulk of Kimly’s outlets located in residential heartlands and employees gradually returning to their workplaces, Tan expects footfall to be impacted. But he believes that this could be cushioned partially by rising inflation, which could cause downtrading among consumers towards mass-market dining options, as well as the removal of dine-in group size limits, which could benefit Kimly’s zichar and drink store sales.
Kimly also announced that its management agreements of nine coffee shops under a third-party brand will be terminated in 2HFY2022, following this brand owner’s internal reorganisation, Tan estimates about 5% revenue impact on Kimly’s FY2023 outlet management segment from this.
Kimly’s operating profit margin shrank 6.2% point y-o-y in 1HFY2022 on the back of higher food costs, staff expenses and utilities expenses. While pricing adjustments were made in 2QFY2022, the analyst thinks that those could be insufficient to cover the continued cost elevation in recent months.
Hence, Tan has cut FY2022 EPS by 8.7% to factor in lower margins as he thinks Kimly could see near-term margin pressure due to the time lag in cost past-through. Kimly has also flagged manpower shortage as the key reason for closing 12 underperforming food stalls, causing Tan to further lower FY2023-2024 EPS by 13-17% to reflect lower store count assumptions.
As at 2.20pm, shares in Kimly are trading at 38 cents, some 7.3% lower YTD. The stock is also trading at a FY2022 price-to-book ratio of 3.2x with a dividend yield of 3.8%, according to CGS-CIMB’s estimates.
