RHB Group Research is reiterating its "buy" call on coffeeshop operator Kimly with a higher target price of 42 cents from 39 cents previously, following the group's announcement of its acquisition of a 75% stake in domestic food business Tenderfresh for $54 million, of which $16 million will be paid through a new share issuance at 31.24 cent per unit.
See: Kimly acquires 75% stake in Tenderfresh business for $54 mil
Analyst Jarick Seet says, "We believe that this acquisition is a positive, being both EPS-accretive and in
line with the company’s strategy. This should enable it to expand food concept offerings, and venture into restaurants and halal coffeeshops with high synergistic value."
Kimly aims to complete the acquisition in the next five to six months, which means that the profits will likely only be recorded in FY2022. There is also an earn-out at profit before tax (PBT) of $9 million
management is confident that this target can met, which will add about $5.5 million (22%) to net profit from FY2022 onwards.
Seet is positive on the outlook for this acquisitions as this can enable expansion into new dining concepts and the halal segment for the group.
Tenderfresh manages 14 concepts and 41 outlets, ranging from western fare and traditional local cuisines to food kiosks, retail outlets and original equipment manufacturing (OEM).
"The acquisition of Tenderfresh will allow Kimly to introduce new food concepts into its coffeeshops, and it would not need to find more tenants when a new coffeeshop is leased or bought – ensuring a max occupancy rate at a faster period," notes Seet.
Kimly would also be able to penetrate the halal market, through halal coffeeshops and offering more halal food at its outlets. At the same time, it has also moved into the food court/restaurant business through this acquisition, expanding its reach through Kimly’s outlet locations and type of stores.
Meanwhile, Kimly has also released its latest 1HFY2021 results, which saw earnings surge by 106.2% y-o-y to $21.7 million, while revenue grew by 14.2% y-o-y to $122.6 million. The group also declared an interim dividend of 0.56 cents per share, double that of delcared in the previous year.
See: Kimly more than doubles 1H21 earnings to $22 mil, declares interim DPS of 0.56 cents
"The group has also seen robust growth from its food delivery business and we believe this trend will likely continue. In addition, it will continue to improve its cost structure, as well as negotiate to lower rental rates – which should help to strengthen margins," says Seet.
"We expect Kimly’s business to remain strong amidst this pandemic, and that it will likely continue to reward shareholders with attractive dividends," he adds.
Kimly has been a beneficiary of the Covid-19 pandemic as work-from-home measures are becoming the new norm and its coffeeshops are located in the heartlands. On May 14, the Singapore government announced for all businesses to work from home, while restaurants are not able to open for dine in from May 16 to June 13.
As at 4.25pm, shares in Kimly are trading at 34 cents or 3.3 times FY2021 book with a dividend yield of 5.9%.
