uSmart is initiating coverage on Kimly with a “hold” and 40 cents target price. Analyst Eng Thiam Choon notes that Kimly is one of Singapore’s largest traditional coffee shop operators, generating majority of its revenue from its food retail division, selling mixed vegetable rice, dim sum, zi char and halal-certified Tenderfresh brands.
“The group continues to strengthen its position in the mid-to low-priced casual dining segment, supported by central kitchens that ensure consistency, and cost efficiency,” says Eng in a Nov 25 report.
Kimly is also positioning itself to capture long-term dining demand in Singapore through strategic expansion of its coffee shop network and continuous enhancement of operations thought recent property acquisitions in Serangoon, Yishun and Haig Road to stabilise long-term operations and reduce reliance on lease renewals.
“At the same time, the halal segment remains a structural growth avenue for the group, with Tenderfresh and Kedai Kopi increasing brand recognition for previously untapped 15% of Singapore’s Muslim population,” says Eng.
However, Eng cautions that growth has remain stagnant in the past three years with revenue coming in at $317.7 million in FY2022, $313.9 million in FY2023 and $320.2 million in FY2024. Similarly, net income was stagnant, due to sustained high cost of sales at 70%-72% of revenue.
“We recommend medium- to long-term investors to ‘hold’, due to stagnant income growth, offsetting strength as a market leader in coffee shops operations and strong dividend payout,” says Eng.
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Eng views that FairPrice Group’s food services is the closest competitor to Kimly as it offers F&B spaces through food courts which are tenanted to a variety of food stalls, and is a very similar concept to Kimly’s outlet management, though Kimly’s locations are smaller but are located at many more places. Other locally listed entities that Eng constitutes as Kimly’s competitors include Jumbo Group, ABR Holdings and Japan Food Holdings.
Key catalysts include cost-reduction initiatives, like automated central kitchen which reduced cost of sales from 80% down to 70%-72%; and increased expansion of store through joint ventures to increase brand recognition.
Risk includes long-term persistent increase in cost of inputs, like labour, ingredients and rents.
As at 4.30pm, shares in Kimly are trading at 38 cents, up 16.7% ytd.
