Kimly (KMLY SP) 

 

BUY | Price/Tgt: S$0.265/S$0.360 | Mkt Cap: S$315.0m

 

Potential Beneficiary Of COVID-19 From Heartland Presence And Lower Price Point

 

Kimly is the largest coffee shop operator in Singapore with outlets across Singapore&rsquo s heartlands, near the home of majority of the population. We expect Kimly to benefit from COVID-19, as most people are working from home and are becoming more price sensitive. With a high net cash balance of S$69m, Kimly offers a higher dividend yield vs peers (5.5% for FY20F). The addition of five coffee shops in 1H20 will boost EPS growth for FY21-22. Initiate coverage with BUY and a PE-based target price of S$0.36.

INVESTMENT HIGHLIGHTS

· Largest coffee shop operator in Singapore. Kimly Ltd (Kimly) operates more than 65 coffee shops islandwide, making it the largest coffee shop operator in Singapore. We note that its competitors, such as Kopitiam operates around only 30 coffee shops, while Koufu operates about 16 coffee shops. The advantages of coffee shop operations include boosted earnings given the proximity to the heartlands, where many are working from home, easy access for online food delivery providers and lower price point due to lower operating costs as compared to shopping malls.   

· Strategically located in the heartlands, near to Singaporean&rsquo s home. Kimly&rsquo s food outlets are strategically located across the heartlands of Singapore, and are thus able to benefit from a growing customer base. With the ongoing COVID-19 pandemic, much of the population has been working from home. Being located in the heartlands would definitely support Kimly&rsquo s revenue growth. As Singapore re-opens its economy following the lifting of circuit breaker measures, Kimly is well-positioned to ride on this as customers start to dine in at Kimly&rsquo s multiple restaurant brands. 

· Cash-generative business allows for more M& As and higher dividend. Due to the cash generative nature of its business, Kimly has an impressive net cash balance of S$69.3m (23% of market cap) as of 1H20. Thus, Kimly has paid out one of the highest dividends as compared to competitors in Singapore. Also, Kimly has begun acquiring more coffee shops to add to its growing portfolio with recent acquisitions completed in 1HFY20. By doing so, the acquisitions would help boost future revenue and profits when these assets start contributing significantly in 3-5 years post acquisitions.

· Initiate coverage with BUY and PE-based target price of S$0.36, based on 15.0x FY21F PE, pegged to Kimly&rsquo s 3-year average mean PE. Kimly is currently trading at 11.1x FY21F PE, unjustified, based on its strong balance sheet, high net cash position and higher dividend yield vs other regional peers. Thus, we believe that Kimly should be trading nearer to its regional peers&rsquo 2021F PE of 16.5x.