As a result, Mo and Cheong have kept their “hold” call, at a target price of 36 cents, pegged to a 12.5x FY2023 P/E, 0.5 standard deviation (s.d.) below the mean, due to increasing costs from inflationary pressures.

Kimly reported a stable revenue of $155.5 million (-0.9% y-o-y), and a positive profit after taxation and minority interests (patmi) growth (+0.7% y-o-y), forming 49.2% and 53.4% of the analysts’ full year-forecasts, which lies largely within their expectations.

Gross profit fell 11% y-o-y as a result of higher rental and employee benefit expenses incurred during the period, and the absence of rental reliefs and government grants coupled with rising wages has led to a drop in 1HFY2023 gross margin by 3.1 percentage points (ppt).

Meanwhile, Kimly declared a similar interim dividend to 1HFY2022 of 56 cents per share.

The analysts note that while Kimly saw weak performance from its food retail segments, the fallout was offset by other segments.

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“The fall in revenue was attributable to the 6% y-o-y (-$5.5 million) lower revenue contribution from its food retail division, as food delivery demand normalised, along with the closure of restaurants and stalls,” say Mo and Cheng.

During FY2022 and 1HFY2023, five Tenderfresh Group restaurants and two stalls were closed upon resource rationalisation, while 11 stalls were closed due to poor performance, note the analysts.

However, this was partially offset by revenue from the remaining outlet management (+$3.8 million, +6.7% y-o-y), and outlet investment segments (+$0.3 million, +9.1% y-o-y), as a result of five coffeeshop openings in FY2022 and 1HFY2023, higher rental income and increased sales of beverages and tobacco products.

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Mo and Cheng say that Kimly has maintained its strong balance sheet and net cash position of $53.9 million at the end of 1HFY2023, and with strong operating cash flows from its cash-generative business, a decent dividend yield of 4% to 5% going forward is anticipated.

Kimly is expected to see a slower growth in food outlet openings moving forward — they have successfully completed their disposal of seven Rive Gauche Patisserie branches, and closed another 18 restaurants and stalls across FY2022 and 1HFY2023.

Despite opening three new outlets in 1HFY2023 and maintaining its guidance of three to five new outlet openings annually, Mo and Cheng foresee fewer food outlets on aggregate, which they say will negatively impact future earnings.

As macroeconomic headwinds are set to persist, Kimly will continue to be impacted by rising ingredient and labour costs.

As at 3.20pm, shares in Kimly are trading flat at 34 cents.

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