Listed F&B players review operations; Kimly named as being relatively resilient

Singapore

FOOD and beverage (F&B) players are expected to have a rough 2020, but some will do better than others. Coffee shop operator Kimly, for one, appears more resilient than its listed peers.

The F&B industry has been under siege since February from the Covid-19 outbreak, and the "circuit breaker" imposed in April only worsened these players' situations.

The latest statistics show that the sales value of F&B services in April dropped 53 per cent year on year, or 38.8 per cent month on month on a seasonally-adjusted basis, to S$397 million. Online sales' contribution to the total sales value rose to 39.2 per cent, from 15.6 per cent in March, 12.5 per cent in February and 9.8 per cent in January.

All categories of food services registered declines of varying degrees. With dine-in operations suspended, restaurant takings fell 66.9 per cent. The takings of food caterers fell 59.8 per cent, and those at cafes and food courts, by 45.5 per cent. Takings at fast food outlets fell 28.6 per cent.

These numbers suggest that investors will be better off sticking with F&B players on the lower end of the consumer price range.

Analysts agree. RHB Securities Singapore analyst Juliana Cai said Kimly has the most resilient earnings among the three counters covered by the research house; the other two are Japan Foods Holding and Jumbo Group.

Catalist-listed Kimly's net profit rose 5.3 per cent year on year to S$10.5 million for the first half to March 31. It was possibly the only listed F&B operator to deliver higher earnings after the coronavirus hit.

Revenue grew by 3.1 per cent to S$107.4 million on contributions from new coffee shops and stalls, as its network expanded to 79 food outlets and 137 food stalls.

Ms Cai said Kimly is in a sweet spot because consumers are already familiar with the takeaway concept in coffee shops.

Kimly has said that it expects to stay in the black for the year as consumers continue to favour economical food options and food deliveries. Japan Foods and Jumbo are also in net cash positions and have strong balance sheets, said Ms Cai.

But CGS-CIMB analyst Ong Khang Chuen said it will take time for Jumbo's footfall to recover as tourists and business meals account for a significant portion of its Singapore revenue base. Local consumer spending is also likely to remain cautious amid softer economic conditions.

"Compared to other Singapore-listed F&B peers, we believe Jumbo will have a longer path to recovery, given its focus on the high-end market."

Jumbo's CEO Ang Kiam Meng told The Business Times that the company is focusing on the local market, given that tourism may not pick up so soon. It is also exploring ways to make its concepts more appealing for takeaways and deliveries, such as a lower-priced menu and casual dining.

Other F&B players told BT that they are preparing to face the pandemic in their own ways.

Wong Wei Teck, managing director of mainboard-listed Soup Restaurant Group, believes that its established brand and sufficient reserves will stand it in good stead. He added that the company will remain flexible.

Tung Lok Restaurants has boosted its war chest with S$5.5 million in credit facilities from a bank. CEO Andrew Tjioe said operators with deep pockets, and which are larger and more established are likely to be more resilient. Bigger players tend to have more bargaining power in rental negotiations with landlords, he said.

The restaurateur, who has been in business since 1984 and been through a few recessions, said it also helps to have a diversified business model.

Koufu Group, in its reply to questions from the Securities Investors Association of (Singapore), said this month that it was reviewing its geographical and business mix so as to maintain a core mass-market presence that is more resilient to unforeseen events. This could include investing directly into successful food stall chain operators in existing hawker centres and malls.

DBS Group Research said Koufu's business is generally cash generative, with at least S$30 million in operating cash flow generated each year over the past three years. Capital expenditure has been comparatively low at less than S$15 million per year over the same period.

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