Kimly facing margin compression but steady cash flow to help support dividend policy: UOB Kay Hian

Due to higher wage and utilities costs, gross margins fell by 0.5 points y-o-y.

Thanks to a strong balance sheet, with net cash of some $71.4 million as at Sept, along with strong operating cashflows, Kimly is maintaining its policy of paying out more than 55-60% of annual earnings, which would imply a decent dividend yield of 5-7% moving forward, the analysts say.

For 2HFY2023, Kimly is paying 1.12 cents, bringing the full-year total to 1.68 cents, implying a payout ratio of 57.2%, down from FY2022's 61.4%. The payout is a "decent" yield of around 5%, state Cheong and Mo.

Meanwhile, due to rising costs, including higher wages mandated for certain lower income workers, Cheong and Mo see Kimly facing margin compression this current FY2024. 

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For the current FY2024 and coming FY2025, they've lowered their patmi estimate but raised it for FY2026.

Cheong and Ho's 36 cents target price is pegged to 12x (0.5 sd below mean) FY2024 estimated PE due to increasing costs from inflationary pressures.