According to Thai, Kimly is offering an above-average FY17F and FY18F FCF Yield of 4.4% and 6.3%, respectively.
The coffee shop chain is expected to be hit by higher effective tax rates of 13% for FY17 upon restructuring, but stable growth is expected from FY18.
Thai projects a three-year net profit CAGR of 1.7% for FY17-19 on the back of a steady increase in the number of outlets managed and food retail stalls.
“We remain optimistic of the group’s business outlook which is bolstered by a strong management team and resilient industry trends. Meanwhile, we believe potential M&As could add another leg of growth for Kimly,” Thai says.
In addition, Thai points to Kimly’s beverage business comprising 64 stalls as a “massive cash cow”.
Highly cash generative, the group’s beverage business provides daily cash flow and ensures the viability of the entire food outlet, according to Thai.
Kimly has a history of strong operating cash flow, and was in a net cash position as of FY16. Operating cash flows are expected to remain resilient at $28.1 million and $29.0 million by FY17 and FY18, respectively.
“With its existing clout of 5.8% market share, Kimly is in an advantageous position to consolidate the industry. Furthermore, being the only listed coffee shop operator in Singapore would furnish Kimly with not just a war chest but also acquisition currency in the form of equity,” says Thai.
As at 3.40pm, shares of Kimly are trading half a cent higher at 44.5 cents.
