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Analysts remain hungry for Kimly despite bitter ending on CAD investigation

Samantha Chiew
Samantha Chiew • 4 min read
Analysts remain hungry for Kimly despite bitter ending on CAD investigation
Analysts' appetite for Kimly remains strong despite CAD investigation on executives turning sour.
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On Nov 11, Kimly’s executive chairman Lim Hee Liat and its executive director Chia Cher Khiang have each been charged by the Commercial Affairs Department (CAD) for an offence under Section 331 (1) of the Securities and Futures Act (SFA).

The charges against Lim and Chia were in relation to Kimly’s failure to notify the Singapore Exchange Limited (SGX) that its acquisition of Asian Story Corporation was an interested person transaction. The acquisition of ASC has since been rescinded.

See: Kimly's executive chairman and executive director charged by CAD

Following the CAD charge, Lim and Chia both resigned as directors but remain employees of the group.

Despite this news, RHB Group Research is keeping its “buy” call on the stock with a lower target price of 42 cents from 48 cents previously.

“We believe the charges against Kimly’s two top management, who had resigned last Thursday, will not majorly impact the company’s operations. However, we lower our target price due to our lower ESG grading,” says analyst Jarick Seet in a Nov 16 report.

See also: Analysts show concern on Food Empire's margins in FY2024 and beyond

With the resignation of Lim and Chia, Wong Kok Yoong, Karen, the current finance director on the board, has been redesignated as executive director and will also be appointed to the nominating committee to replace Lim.

Ronnie Yeo, director of operations as well as Kelvin Chua, managing director of Tenderfresh Group will be appointed as executive officers. Lin Meiqi, who joined Kimly in 2018 as a group finance manager, will be appointed as financial controller of the company. Pending the conclusion of court proceedings, the board has further requested Lim and Chia to remain as employees of the group to assist and facilitate the board and management in the transition.

“We believe that more certainty of this ordeal will be positive for Kimly in the long term as it finally removes the overhang of this case and allows management to reshuffle and move forward with its strategic plans. We think Lim, who is the majority shareholder of the company, will likely continue to benefit the group with his expertise and experience,” says Seet.

See also: Brokers’ Digest: ComfortDelGro, Frasers Property, Bumitama Agri, Paragon REIT, Cromwell European REIT, Memiontec, CSE

On the other hand, DBS Group Research on Nov 18 has initiated coverage on Kimly with a “buy” recommendation and a target price of 50 cents.

“The stock is trading at an undemanding 12 times FY2021 PE, about 0.5 SD below its five-year mean of 15 times. With a 21% EPS CAGR over FY2020-2023 and strong cash flow generation supporting a decent yield of 4.9% in FY2022, we see Kimly as an attractive ‘buy’,” says analyst Paul Yong.

Yong also sees an uplift for the group’s food retail segment thanks to the completion of its latest acquisition of 75% stake in Tenderfresh last month.

See: Kimly acquires 75% stake in Tenderfresh business for $54 mil

This acquisition will add 14 concepts and 41 food stalls to Kimly’s count and will begin its earnings contribution in FY2022.

“Leveraging Tenderfresh’s position in the Halal market, Kimly will be able to reach out to the 14% Muslim population in Singapore. Synergies expected from the acquisition include cross-selling and streamlining of processes. We project a 22% revenue CAGR in FY2020-2023F for the food retail segment,” says Yong.

While he remains conservative on the group’s food outlet expansion, the analyst understands that there is a limited supply of long-term leasehold coffeeshop properties for sale or lease, which could be further upside to his estimates if Kimly can deliver more acquisitions by using its strong balance sheet to fund inorganic growth.

For more stories about where money flows, click here for Capital Section

For more stories about where the money flows, click here for our Capital section

As at 11.30am, shares in Kimly are trading 5.3% higher at 40 cents or 12.6 times FY2021 earnings, with a dividend yield of 4.1%. Kimly is expected to release its FY2021 results on or around Nov 25.

Photo: The Edge Singapore/ Albert Chua

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