SINGAPORE (July 4): RHB Research is maintaining its “buy” call on Kimly with a higher target price of 46 cents compared to 43 cents previously, following news of the coffee shop operator’s $16 million acquisition of Asian Story Corp (ASC) and its Asian Story brand portfolio with a 7.7% market share.
The research house is particularly positive on the acquisition with the view that Kimly stands to benefit from longer-term growth, profit accretion and increased cash flow.
This comes in spite of higher amortisation of intangibles, which lead analyst Jarick Seet notes is likely to increase by $2 million per year for the first 30 months but will nonetheless translate to a higher target price even after adjusting for a maximum earn-out.
In particular, Seet notes that the acquisition was made only at 14-15 times FY18F P/E. This suggests “very encouraging growth signs”, in his view, given how the first three months of FY18 profit before tax (PBT) is already approaching $0.55 million compared to a PBT of just $1.15 million in FY17.
“We understand the introduction of Pepsi, as well as its new bandung drink into the mix, has boosted profitability. With more beverage types like coconut water – coupled with the replacement of drinks at Kimly’s drink stores and coffeeshops, as well as the overseas expansion plans – we foresee that a FY18 PBT of $2 million is achievable. We also expect a FY19 PBT of ~$3 million due to the aforementioned factors,” says the analyst.
“With $50-60 million in cash remaining, we think there will likely be more similar style acquisitions to come, which should further propel Kimly’s profitability,” he adds.
As at 10:40am, shares in Kimly are trading flat at 37 cents or 5 times Sept-18F book.
