CGS-CIMB's Kenneth Tan and Ong Khang Chuen have kept their "hold" call on coffeeshop operator Kimly 1D0 Group, following its 2HFY2023 earnings for the period ended Sept.
The core net profit of $18 million for the six months ended Sept was above their expectation, thanks to resilient outlet management margins.
This brings Kimly's full-year FY2023 core earnings to $34 million, up 16% y-o-y. A dividend of 1.68 cents has been declared, held steady from the previous year.
In FY2023, Kimly closed 4 outlets, but opened three new ones. Tan and Ong, citing the management, expect Kimly to try and open three to five new outlets in the current FY2024.
"However, we see the potential for some store closures should rental reversions from private landlords, which make up 56% of leases as at end-FY2023, to be too significant and if Kimly finds it difficult to pass on higher costs to tenants," the analysts state.
In addition, Kimly has flagged it is facing higher labour costs due to the national Progressive Wage Credit Scheme. Some of its suppliers have already adjusted prices upwards ahead of the next 1% GST hike next month.
Under a conservative forecast, they expect Kimly to open just one outlet in the current FY2024 and two, net, in the coming FY2025.
"Kimly has been raising rental rates and food prices to pass on the cost pressures but remains cautious in managing the pace of price hikes to ensure a healthy level of earnings for its food stall tenants, and that food prices stay affordable given the cost-conscious nature of its customers," say Tan and Ong.
However, with a view that margin pressure will persist going forward, the analysts have slightly trimmed their target price from 37 cents to 36 cents.
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The new target price, pegged to 13x current FY2024 earnings, is a lower multiple from 15x used previously.
Kimly shares closed Dec 4 at 31 cents, unchanged for the day and down 11.43% year to date.
