RHB Group Research analyst Jarrick Seet has maintained his “buy” call on Kimly with an unchanged target price of 42 cents, representing a 20% upside on the counter’s last closed share price.

To Seet, Kimly is likely to be the beneficiary of continued rental and worker subsidies on the back of the implementation of the Phase 2 (heightened alert) measures in Singapore.

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During this period, the coffeeshop operator may see an increased demand for food takeaway and delivery services as dining-in is currently not allowed, and as people return to work-from-home practices. These, says Seet, should boost Kimly’s net profit margin (NPM).

To be sure, Kimly experienced a “superb” 1HFY2021 where 1HFY2021 revenue and PATMI grew by 14.2% y-o-y and 106.2% y-o-y to $122.6 million and $21.7 million respectively, due to higher contributions from its food and food court management divisions. 

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The company also aims to continue improving its cost structure, while negotiating to lower rental rates from landlords, which should help margins, says Seet in his report dated May 24.

On this, Seet estimates that Kimly’s profit before tax (PBT) should increase by $9 million from the FY2022 onwards as its acquisition of Tenderfresh is expected to be completed in the next five to six months. The timeline translates to profits from the new business only being recorded by FY2022 onwards. 

In addition, the acquisition comes with an earn-out clause at a PBT of $9 million, which Kimly’s management says it is confident of achieving. This should add about $5.5 million to its net profit from FY2022, says Seet.

Tenderfresh manages 14 concepts and 41 outlets, ranging from western fare and traditional local cuisines to food kiosks, retail outlets and original equipment manufacturing. 

This should enable Kimly to firstly, introduce new food concepts to its coffee shops and secondly, achieve a maximum occupancy rate in a faster period due to the lesser need to find as many tenants when a new coffee shop is leased or bought.

Kimly could also penetrate the halal market through halal coffee shops and offering a wider range of halal foods.

SEE:RHB keeps 'buy' call on Kimly with its latest acquisition

Overall, Seet expects Kimly’s business to remain strong amidst this pandemic, and that it will likely continue to reward shareholders with a “handsome” dividend yield of 6% for the FY2021.

However, Seet notes that “downside risks to our call include a rise in outlet rental rates, and labour shortages.” 

As at 1.13pm, shares are trading at 0.5 cents lower or 1.4% down at 34 cents, or 3.3 times P/B, according to RHB’s estimates.