UOB Kay Hian analysts Llelleythan Tan and John Cheong are keeping their “hold” recommendation on Kimly after the coffeeshop operator posted “underwhelming results” although within their expectations for the 1HFY2022 ended March.
“We see limited upside at current levels, coupled with the absence of any near-term catalysts,” Tan and Cheong write in their June 13 report.
For the half-year period, Kimly’s PATMI fell 14.7% y-o-y to $18.5 million, forming 58.5% of Tan and Cheong’s full-year estimates.
The underperformance was mainly due to higher operating costs, which put Kimly’s margins under pressure.
The company’s operating business segments also saw weaker performance on the back of lower footfall and the restricted number of diners due to Covid-19 restrictions.
Lifting of Covid-19 measures may soften footfall; lower target price
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The way the analysts see it, the lifting of most social distancing measures including 100% of workers being allowed to return to their workplaces, may soften the footfall for Kimly’s coffee shops as most of them are located in the heartlands.
That said, the removal of the dine-in group size limits may mitigate the impact of the removal of the work-from-home (WFH) default.
In addition to their “hold” call, Tan and Cheong have lowered their target price on the counter to 37 cents from 38 cents previously. The new target price is based on an FY2022 P/E of 15.0x, down from the previous valuation of an FY2022 P/E of 16.0x.
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The lower target price is based on the analysts’ lower FY2022 estimates as well.
To this end, Tan and Cheong have also lowered their PATMI forecasts for the FY2022, FY2023 and FY2024 by 3.1%, 1.4% and 2.5% respectively to $30.9 million, $33.7 million and $36.7 million.
The lower forecasts stem from the higher operating costs and lower revenue growth assumptions.
Major earnings-accretive acquisitions key re-rating catalyst
“Currently trading (15.5x FY22F PE) near its average mean P/E, we reckon that potential upside is capped at current price levels, barring any new acquisitions. We think that a key re-rating catalyst would be future major earnings-accretive acquisitions,” Tan and Cheong write.
Better-than-expected contributions from its coffee shops are another catalyst to Kimly’s share price, they add.
Shares in Kimly closed 0.5 cent lower or 1.3% down at 38 cents on June 13.
