SINGAPORE (March 13): Coffeeshop operator Kimly might look attractive based on relative valuation, but lacks any compelling, sustainable competitive advantage, says KGI Securities in an unrated report on Monday.
In conjunction with its Catalist listing, Kimly is selling 173.8 million new shares at 25 cents each. These consist of 3.8 million shares for public subscription and 170 million placement shares.
(See: Coffeeshop operator Kimly launches IPO; to sell 173.8 million new shares at 25 cents each)
According to KGI’s research team, Kimly’s IPO price of 25 cents implies a 12.0x P/E, compared to its peers’ median P/E of 29.0x.
“Kimly may be attractive based on relative valuation,” KGI says.
In addition, the research house notes that Kimly’s indicative FY2016 EBITDA margin of 15.9% is matched only by four companies in its list of SGX-listed peers: Jumbo Group, ABR Holdings, Japan Foods Holdings, and Katrina Group.
These four peers reported double-digit EDBITDA margins between 12-16% in their last fiscal year, KGI says.
However, KGI cautions that Kimly suffers an “absence of any competitive advantage that could guard its economic profit from being eroded by increasing competition over time.”
“Kimly would have to rely more on a streamlined operating structure and expansion in the number of its outlets to deliver future earnings growth in our view,” KGI says.
Kimly has signalled that it plans to use some $33.4 million in IPO proceeds to fund its acquisitions and expansion of outlets.
In addition, KGI highlights that Kimly’s effective tax rate is set to increase by more than three-fold from the low 3-year average effective tax of 5.1% it is currently enjoying.
This is due to the absence of partial tax exemption and tax relief after the restructuring to rationalise the group structure in preparation for its IPO listing.
“A reversion to a 17% corporate tax rate would lower FY2016 (Pro Forma) PATMI by an estimate of 12.3%,” says KGI.
To find out what Kimly founder Lim Hee Liat has in store for his 500 stalls across 64 food outlets island-wide, get your copy of The Edge Singapore (Issue 770, week of March 13), available at newsstands now.
