Brokers' take: RHB raises Kimly's target, says CAD case no longer an overhang factor

RHB on Tuesday (Jan 18) raised its target price for Kimly to S$0.46 from S$0.42 and maintained its "buy" call on the coffee shop operator.

This comes on the back of Kimly's strong FY2021 results and its S$54 million acquisition of home-grown food business Tenderfresh, announced in May last year.

The group's FY2021 revenue grew 13.2 per cent on the year, while its profit after tax and minority interests surged by 55.7 per cent - a "testament to the business's resilience", said RHB analyst Jarick Seet.

Moreover, Kimly's Commercial Affairs Department (CAD) case is no longer an overhang factor as the management had reshuffled the positions and duties of its team members to address the issue, even as the case is ongoing. The eventual closure of the CAD case will allow management to move forward with its growth strategy, Seet added.

That being said, due to a lower governance rating, RHB's research team has applied a 12 per cent discount to its discounted cash flow-based value of S$0.52 on Kimly, resulting in the S$0.46 target price.

This new target price of S$0.46 implies a potential upside of 12.2 per cent from the counter's Tuesday closing price of S$0.41, which was flat on the day before.

"We expect the company to continue expanding organically, by opening more outlets and refurbishing existing ones," Seet noted.

Kimly is also trading at a much lower valuation compared to peer Koufu, which is trading at price-to-earnings ratio of 16 times following its proposed privatisation - a point echoed by other analysts.

Earlier this month, CGS-CIMB said Koufu's privatisation offer is a positive to Kimly, which is trading at an "undemanding valuation" of about 13 times the research team's earnings estimates for the 2022 calendar year.

In an initiation report on Nov 18, DBS Group Research 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.