Kimly Ltd - RHB Invest 2018-05-09: A Superb 2Q18

KIMLY LIMITED SGX: 1D0

Kimly Ltd - A Superb 2Q18

Kimly reported a superb 2Q18, with revenue steadily growing at 3.8% y-o-y and PATMI surging 20.2% y-o-y. This was on an increased number of coffeeshops and third-party brands outlets, as well as a 10.2% decrease in administrative costs due to the absence of listing expenses.
We expect such a performance to continue into subsequent quarters. An interim dividend of SGD0.0028 has been declared.
Management has also managed to open a new coffeeshop in Ghim Moh and added another four food stores to Kimly’s network.

Kimly reported a superb 2Q18, with revenue steadily growing at 3.8% y-o-y and PATMI surging 20.2% y-o-y. This was due to an increased number of coffeeshops and third-party brands outlets, as well as a 10.2% decrease in administrative costs due to the absence of listing expenses.

As at 2Q18, Kimly had a strong net cash position of SGD85.5m accompanied by zero debt. As a result, management declared an interim dividend of SGD0.0028, representing a payout ratio of 28.9%.
We expect the final dividend to be significantly higher, at around 50% payout ratio of PATMI.

With strong net cash balance of SGD91m, as well as consistent and recurring positive cash flows, management is interested to look into acquisition targets for vertical integration.
It may look for value-accretive acquisitions or JVs in the region of SGD10-20m to boost up its value chain proposition in 2018-2019. This is likely to add around 10-15% of PATMI to FY18, which we have not yet included in our estimates.

Today, the group operates and manages 68 coffeeshops and four industrial canteens under the Kimly and third-party brands. It also operates four food courts under the foodclique brand. As at 30 Sep 2017, Kimly enjoyed a 98% occupancy rate across nearly 500 stalls within its managed food outlets.
Management is looking to add up to 1-2 coffeeshops annually, as well as ramping up on third-party brands – which it has been doing.
We are expecting at least 3-4 more additions to its portfolio in FY18.

We like the defensive and rich cash flow-generative nature of Kimly’s business.
We also think that the new outlets it invested in during 2017 – and those coming up in 2018 – are likely to be profitable in 2019-2020. In addition, with M&As in the pipeline, we believe that growth would be exciting in the coming years.
The stock is also trading below the peers’ average P/E of 24x. Accompanied by a superb 2Q18, we remain positive on Kimly and maintain our BUY recommendation and DCF-derived Target Price of SGD0.43 (WACC: 7.5%, TG: 1%).
Key risks to our call include rises in rental rates and labour shortages.

Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-09

SGX Stock Analyst Report BUY Maintain BUY 0.430 Same 0.430