Brokers' take: DBS initiates 'buy' on Kimly, expects more acquisitions to drive earnings

KIMLY 1D0 may see upside to its earnings upon benefiting from a higher-than-expected number of acquisitions, according to DBS Group Research.

The brokerage has started coverage on the coffee shop and food court operator with a "buy" call and target price of S$0.50, which is pegged to a 15 times FY2022 price-to-earnings ratio, which is the stock's 5-year average.

In an initiation report on Thursday (Nov 18), analyst Paul Yong said he sees Kimly as "an attractive buy" due to its undemanding valuations and decent FY2022 yield estimate of 4.7 per cent.

This is higher than its listed peer Koufu's 3.5 per cent FY2022 yield estimate, said Yong, who also noted that Koufu is trading at 15 times FY2022 price-to-earnings and is closest to Kimly in terms of market capitalisation.

Yong is projecting a 22 per cent revenue CAGR (compound annual growth rate) over FY2021 to FY2023 for Kimly's food retail segment, as the group's recently acquired 75 per cent stake in Tenderfresh is slated to reap earnings contributions in FY2022.

Although Yong acknowledges there is a limited supply of long-term leasehold coffee shop properties available in Singapore, he believes Kimly's earnings could further increase if it secures more acquisitions.

"Riding on its strong cash-flow generation ability, we believe that Kimly will be able to embark on even more synergistic opportunities that lie ahead," said Yong, who also highlighted the company's strong balance sheet to fund inorganic growth.

The analyst also thinks Kimly may be able to reach the 14 per cent Muslim population in Singapore, given Tenderfresh's position in the halal market.

"With work-from-home (WFH) a new norm going forward, more consumers working from home could mean higher footfall and more delivery from nearby food outlets. We like that Kimly's food stalls are well-located in the HDB heartlands and can cater to this increasingly large pool of the WFH demographic," he added.

Shares of Kimly were trading at S$0.405 as at 3.08 pm on Nov 18, down S$0.03 or 8 per cent.

READ MORE:

• Kimly set to benefit as more work from home: CGS-CIMB
• Brokers' take: CGS-CIMB positive on Kimly's presence in heartlands, initiates with 'add'