Brokers' take

Kimly Ltd | BUY (maintained) Sept 12 close: S$0.325 Target price: S$0.46 RHB Research, Sept 12

KIMLY has launched a productive coffee shop this year, tapping on automation and digital solutions to improve operational efficiency and decrease reliance on manpower.

It has built-in self-service kiosks for patrons to pay by scanning unique QR codes. We think, however, the adaption of the QR code system will take awhile, with more improvements to be made.

As customers are rewarded with a discount if they return their trays to the station, 80 to 90 per cent of customers cleared their own dishes after finishing up their meals during our visit. Management said this initiative has been well-received by customers.

With about S$60 million in cash remaining after acquiring Asian Story Corp (ASC), we think there will likely be larger and similar-styled acquisitions to come, as management is keen to expand Kimly's presence rapidly in the beverage space - which should further improve profitability.

With the earnings accretion from ASC's fast-growing profit after tax and minority interests (Patmi), we expect its numbers to be included in the group's financials from Q4 FY18 onwards - which will further boost Kimly's Patmi. As a result, we do expect a better Q4 FY18 ahead, and maintain our recommendation and discounted cash flow-backed target price. Downside risks to our call include a rise in rental rates and labour shortages.

Avi-Tech Electronics | NEUTRAL Sept 12 close: S$0.345 Target price: S$0.38 RHB Research, Sept 12

AS Avi-Tech mainly provides burn-in services for chipmakers in the automotive sector, where there has been gradual and steady growth, we expect the burn-in business to continue to grow by 10-15 per cent per annum, and not be impacted by the slowdown in the semiconductor sector.

In H2 FY18, its engineering segment took a hit due to delays in customer projects as well as a slowdown in orders from clients. Management believes that the segment has hit a low already, and business will likely pick up from here, with new customers being secured at the same time. However, it will likely take about 6-9 months to ramp up, and the engineering business will likely continue to be a drag on profitability in FY19 - albeit to a smaller extent.

With a slowdown in the sector, we maintain "neutral" on the counter. We also cut our target price to S$0.38 from S$0.43, as we reduce FY19-20 forecasted earnings by 7 per cent and 6 per cent.

The stock is, however, backed by an attractive FY19 forecasted yield of 7.7 per cent, and management is actively exploring merger and acquisition (M&A) opportunities. Any potential earnings-accretive M&As (given its war chest of S$32 million) would be a positive for shareholders.

Key downside risks to our call include a slowdown in the economy and the semiconductor sector, while the opposite conditions present upside risks.

Compiled by Leila Lai

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.