Kimly set to benefit as more work from home: CGS-CIMB

Singapore

KIMLY will likely gain from Singapore's continued shift towards a hybrid work-from-home model, which should support footfall at its heartland outlets and boost its food delivery services, said CGS-CIMB.

The research team has initiated coverage on Kimly with an "add" call and a target price of S$0.46, adding that the coffee shop and food court operator is its top pick among listed food and beverage (F&B) companies.

CGS-CIMB said in a report on Friday that Kimly 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. 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.

Kimly's net profit for the first half of FY2021 ended March 31 was S$21.7 million, more than double the S$10.5 million reported for H1 FY2020. Its net profit in FY2020 was S$25.2 million, up from S$20.1 million in FY2019.

The Tenderfresh 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, the research team added.

CGS-CIMB expects the acquisition to bring Kimly's net cash to about S$20 million from about S$59 million as at March 31. It notes that the group's strong balance sheet should continue to allow it to grow both organically via outlet expansion and inorganically via acquisitions.

Kimly also has a cheaper valuation and stronger dividend yield compared with its peers, CGS-CIMB said.

Based on CGS-CIMB's forecasted earnings and dividend payout in FY2021, and Kimly's close on Friday at 38 Singapore cents a share, Kimly has a price-to-earnings (P/E) ratio of 13.1 times and a dividend yield of 4.2 per cent.

CGS-CIMB estimates that Japan Foods Holding has a higher dividend yield of 7.4 per cent, but also a higher P/E of 18.8 times FY2021 earnings.

Both Jumbo Group and Koufu Group, meanwhile, are more expensively valued, at 48.4 and 22 times earnings, respectively. Their dividend yields are also lower: 1.4 and 2.3 per cent, respectively.

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

That gives it has a market capitalisation of S$482 million, a price-to-earnings ratio of 13.1 times, and a dividend yield of 3.7 per cent.