Brokers' take: CGS-CIMB positive on Kimly's presence in heartlands, initiates with 'add'

CGS-CIMB has initiated coverage on Kimly with "add" and set a target price of S$0.46, noting that Singapore's continued shift towards a hybrid work-from-home model should support footfall at Kimly's heartland outlets and boost its food delivery services.

In a report on Friday, the research team said the coffee shop and food court operator, which is its top pick among listed food and beverage (F&B) companies, enjoys resilient demand from mass-market consumers even in times of economic uncertainty, as the group's coffee shops are predominantly located in the heartlands.

More individuals working from home could mean more patrons at heartland coffee shops, resulting in higher same-store sales for Kimly's food outlets, CGS-CIMB said.

Kimly is also well-established on the food delivery apps, hence strong demand for food delivery services amid shifting consumer preferences and continued work-from-home arrangements should further spur growth, the research team added.

Additionally, Kimly's expected acquisition of F&B company Tenderfresh will likely contribute to the group's net profit in FY2022, CGS-CIMB said. The deal should also allow the group to tap the halal F&B market in Singapore, enhance its presence in the quick-service restaurant segment and gain new revenue sources such as business-to-business food production, it added.

CGS-CIMB expects the acquisition to bring Kimly's net cash to about S$20 million by FY2021, noting that the group's strong balance sheet should continue to allow it to grow both organically via outlet expansion and inorganically via acquisitions. It added that Kimly has a cheaper valuation and stronger dividend yield compared with its peers.

Shares in Kimly closed at 40.5 Singapore cents on Monday, up 2.5 cents or 6.58 per cent.