Broker's take: RHB still 'neutral' on Kimly, but says ongoing probe may cap upside

RHB Research has maintained its "neutral" call on coffee shop operator Kimly Ltd, but believes the ongoing investigation may limit any potential upside for the stock.

In a morning note, RHB said they attended Kimly's corporate update on Dec 18 and came away reassured that the business operations would not be affected by the ongoing investigations.

"However, we think the ongoing investigation will likely be an overhang on the stock and generate some negative sentiment, with any potential upside likely being limited despite reasonable valuations," said RHB.

They noted that Kimly's management is also unable to share much information on the case at this stage, due to the ongoing investigation.

Catalist-listed Kimly is being investigated over a controversial purchase of a drinks firm that was later aborted, but said in the corporate update that it remains open to acquisitions and strategic alliances, while looking to develop its own brand of coffees and tea.

Kimly also said in its business update that on average, it has been able to acquire between three and five new food outlet locations each year. It expects to operate about 70 coffee shops and food courts in Singapore by the end of the financial year ending Sept 30, 2019.

RHB also noted that management highlighted that it is "open to and undergoing review of possibly increasing the dividend payout ratio... due to the huge cash balance on the balance sheet, with a further S$12 million from the termination of the ASC acquisition".

They previously downgraded Kimly to "neutral" from "buy" after Kimly terminated its agreement to buy Asian Story Corp. Currently, their target price for Kimly is S$0.27.

Kimly's counter traded up 4.17 per cent to S$0.25 before lunchtime on Wednesday.