Kimly - RHB Invest 2018-06-27: 2018H2 Small Mid Cap Top Pick #3 ~ Organic Growth And M&A Are Catalysts

Kimly - RHB Invest 2018-06-27: 2018h2 Small-mid Cap Top Pick 3 ~ Organic Growth And M&a Are Catalysts KIMLY LIMITED SGX: 1D0

Kimly - 2018H2 Small-Mid Cap Top Pick 3 ~ Organic Growth And M&A Are Catalysts

  • Maintain BUY and DCF-based SGD0.43 Target Price, 19% upside.
  • Kimly reported a superb 2Q18, with revenue growing 3.8% y-o-y and PATMI surging 20.2% y-o-y. This was on increased number of coffee shops and third-party brands outlets, and 10.2% decrease in administrative costs from the absence of listing expenses.
  • We expect it to continue into subsequent quarters. Management has also opened a new coffee shop in Ghim Moh and added another four food stores to Kimly’s network.



Kimly reported 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 from an increased number of coffee shops and third-party brands outlets, and 10.2% decrease in administrative costs from the absence of listing expenses.


Net cash position of SGD85.5m, interim dividend declared.

  • As at 2Q18, Kimly’s net cash position was SGD85.5m, with 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.


Actively seeking M&A and JVs.

  • With net cash balance of SGD85.5m, and consistent and recurring positive cash flow, management is interested to look into acquisition targets for vertical integration.
  • It may look for value-accretive acquisitions or JVs of SGD10-20m to boost value chain proposition in 2018- 2019. This is likely to add around 10-15% of PATMI to FY18F, which we have not included in our estimates.


Expanding outlets through new store openings and managing third party brands.

  • Today, the group operates and manages 68 coffee shops 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 managed food outlets. Management is looking to add up to 1-2 coffee shops annually, and ramp up on third-party brands – which it has been doing. 
  • We are expecting at least 3-4 more additions to its portfolio in FY18.


Maintain BUY.

  • 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&A in the pipeline, we believe growth would be exciting in the coming years. Kimly is also trading below peer average P/E of 24x. 
  • Key risks are rises in rental rates and labour shortages.
  • RHB is the only broker covering Kimly.



Also Read:

Small Mid Caps Stocks Singapore - RHB Invest 2018-06-27: Top Picks For 2H18




Jarick Seet RHB Invest | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-06-27
SGX Stock Analyst Report BUY Maintain BUY 0.430 Same 0.430



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