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Kimly still a 'buy' for RHB but with lowered target price

The Edge Singapore
The Edge Singapore2/10/2023 03:18 PM GMT+08  • 2 min read
Kimly still a 'buy' for RHB but with lowered target price
The stock now trades at 12x FY2023 earnings – below the historical average of 14x. Photo: Albert Chua/The Edge Singapore
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Coffeeshop operator Kimly’s 1D0 %

FY2022's earnings was a miss but RHB Group Research is keeping its “buy” call on the stock, which now trades at a level below its historical average valuation multiple.

The stock now trades at 12x FY2023 earnings – below the historical average of 14x.

On Nov 24, the company reported earnings of $34 million for FY2022 ended Sept 30, 2022, down 13% y-o-y, partly because of one-off government grants enjoyed in FY2021 that wasn’t repeated.

Revenue, on the other hand, increased by 33% y-o-y to $318.8 million led by contributions from recently-acquired business Tenderfresh.

Excluding Tenderfresh, Kimly’s core revenue grew by 2.3% y-o-y to $244.5 million, with three new coffee shops and also growing revenue from its cleaning services.

On the other hand, revenue growth was offset by the termination of five management agreements for five coffee shops under a third-party brand and 11 underperforming food stalls.

See also: Analysts mixed on TDCX, as visibility for core revenue contributor remains poor

If the government grants were excluded, Kimly managed to improve its gross margins.

“As FY2022 earnings were a miss to our previous estimates, we have recalibrated our earnings forecasts to reflect revenues, costs, and margins closer to their current run rates while also taking into account the progressive wage in its cost structure,” writes RHB analyst Alfie Yeo in his Feb 7 note.

As such, Yeo has trimmed his earnings estimate for the current FY2023 and the coming FY2024 to $36 million and $41 million, thereby cutting his target price from 46 cents to 40 cents.

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Citing the potential for Kimly to add new outlets in the near term, especially in the newer housing estates, Yeo remains upbeat on this stock.

“The overall outlook for F&B in terms of demand and store openings remains positive,” he says.

As at 3.20 pm on Feb 10, Kimly shares changed hands at 35 cents.

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