Reasons for the offer were: Koufu does not need funding from equity capital markets; low trading liquidity of Koufu shares; for greater management flexibility in both strategy and operations; and removal of compliance costs associated with maintaining a listing status.
Lead analyst Kenneth Tan says, “We think the privatisation is highly likely to go through. The offer price is attractive, in our view, as it is close to Koufu’s all-time high share price since the company got publicly listed in 2018.”
The offer price implies valuation of about 16 times FY2022 price-to-earnings (P/E), comparable to the research house’s target P/E multiple of 17 times. Free float is also low, while Koufu’s founders already have deemed interest of 77.41% (via Jun Yuan Holdings) and only require an additional 12.59% (90% stake) to compulsorily buy out Koufu’s remaining shares from dissenting shareholders.
Should this privatisation go through, Koufu will be the third F&B company to be delisted from the SGX since 2020, following the footsteps of Neo Group and Breadtalk.
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With Koufu out of the way, Tan sees this as a positive for Kimly. Kimly is currently trading at an undemanding valuation of about 13 times 2022 PE (-1 SD from five-year historical mean), a notable discount to Koufu’s privatisation valuation of 16 times PE.
Tan has reiterated his “buy” call on Kimly with a target price of 56 cents, while keeping the stock as his top sector pick, in view of the group’s favourable growth prospects.
Meanwhile, Kimly continues to benefit from structural trends of hybrid work arrangements becoming increasingly prevalent (which supports footfall at heartland outlets) and growing demand for online food delivery.
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“We also expect sequential earnings recovery in 1HFY2022 as footfall recovers upon the easing of dine-in measures locally since November 2021 (currently at five-pax cap). Kimly is also backed by net cash of $71 million as at end FY2021 (14% of current market cap), which we think should contribute to continued outlet expansion of about three outlets per year, and sustainable dividend yield of 4%,” adds Tan.
As at 3.55pm, shares in Kimly are trading at 41 cents or 3.4 times FY2022 book with a dividend yield of 4.4%.
