SINGAPORE (Dec 3): RHB Research is downgrading Kimly to “neutral” from “buy” given the latter’s dream of building a major F&B player like Frasers and Neave is over.

This comes after Kimly has terminated its agreement to buy Asian Story Corp (ASC) due to Pokka ending its manufacturing agreement with ASC.

Kimly chairman and director under probe; $16 mil acquisition cancelled

In a Monday report, RHB lead analyst Jarick Seet says, “This spells negative prospects for Kimly, as it will halt its fast-track growth plans. Our investment thesis on it becoming a player in the beverage industry, with synergies between its coffeeshops, is also now invalid.”

To date, Kimly has recovered $12 million out of $16 million from the seller and will receive the remaining sum over the next three years.

With the failure, Seet says it will be difficult for management to make any acquisitions in the near term despite having $71 million of net cash in its balance sheet.

To recap, the Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) have requested Kimly to furnish documents and equipment related to its IPO, as well as the acquisition of ASC. This is in connection to an investigation under section 199 of the Securities and Futures Act.

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Executive chairman Lim Hee Liat and executive director Chia Cher Khiang have also received similar requests from the authorities.

The delay of its results announcement was mainly due to the removal of ASC numbers in its consolidated numbers.

Seet says ongoing investigation likely negative on Kimly’s stock price but the company should see only inflation-adjusted growth.

“We now exclude ASC from our projections and cut PATMI for FY19F-20F, which results in a lower TP,” says Seet.

Kimly should still record a decent FY18F, with revenue rising 5.3% y-o-y and PATMI growing 2.1% y-o-y to $202.2 million and $21.9 million, in line with house estimates.

“As the acquisition is called off, our investment thesis is no longer valid... As a result, we remove ASC from our projections and lower FY19F- 21F PATMI by 4%, 10% and 12%, resulting in a lower DCF-backed target price of 27 cents,” says Seet.

Kimly has also declared a DPS of 0.96 cent, implying a FY18F yield of 3.8%.

Year to date, the counter down 31.4% to 24 cents or 12 times FY20F earnings per share.