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Kimly maintains share buybacks; investigations remain a negative for stock

Benjamin Cher
Benjamin Cher5/31/2019 07:30 AM GMT+08  • 3 min read
Kimly maintains share buybacks; investigations remain a negative for stock
SINGAPORE (Jun 3): Kimly, which runs a chain of coffee shops, has been steadily buying back shares from the open market since late March. The latest purchase, of 860,000 shares at 24 cents, was made on May 27. This follows a purchase of 230,000 shares at
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SINGAPORE (Jun 3): Kimly, which runs a chain of coffee shops, has been steadily buying back shares from the open market since late March. The latest purchase, of 860,000 shares at 24 cents, was made on May 27. This follows a purchase of 230,000 shares at the same price on May 22.

Kimly’s current streak of share buybacks began on March 27, when it bought 210,000 shares at 23.5 cents each. With the May 27 purchase, the company has bought back a total of 5.65 million shares. Under Kimly’s share purchase mandate, it can buy back up to 115.5 million shares.

Kimly is one of the leading F&B players in Singapore. It runs a total of 68 food outlets and 130 food stalls in the city state. The company went public in March 2017 at 25 cents. Its share price doubled to 51 cents on its third trading day but has since dropped to just over 20 cents.

Last December, the company announced that its executive chairman Lim Hee Liat and executive director Chia Cher Khiang were being investigated by the Monetary Authority of Singapore and the Commercial Affairs Department and have had their passports impounded.

News of the investigations follow the cancellation of a deal announced in July 2018 by Kimly to pay $16 million in cash for a drinks-making company called Asian Story Corp. This deal was canned because Pokka, a Japanese drinks maker, terminated an arrangement to produce drinks on behalf of ASC.

In September 2018, Kimly reportedly hired one Alain Ong Eng Sing, former CEO of Pokka’s Singapore-based operations, for an unspecified position that eventually did not materialise. Ong’s wife, actress Vivian Lai, was a long-time celebrity endorser of the Pokka brand. Ong, who was Kimly’s non-executive director at the time of IPO, stepped down in January after the annual general meeting.

Kimly said at the time of its IPO that it wanted to diversify into other business activities that complemented its original coffee shop business. With the ASC deal scuppered, Kimly will now focus on expanding the coffee shop business and generating growth with more efficient operations. For the three months ended March 31, 2019, the company reported higher revenue of $51.5 million, up 4.7% y-o-y, thanks to contribution from newly acquired businesses.

However, earnings in the same period dropped 13.2% y-o-y from $5.5 million in 2QFY2018 to $4.7 million in 2QFY2019. Kimly attributes the lower bottom line to higher costs.

Similarly, for the six months ended March 31, 2019, the company reported higher revenue compared with the year-earlier period, but lower earnings. Turnover for 1HFY2019 was up 4.9% y-o-y to $104 million, but earnings dropped 10.7% y-o-y to $10 million.

Even with the lower earnings, the company is paying a higher interim dividend of 0.56 cent a share for 1HFY2019, up from the 0.28 cent paid for 1HFY2018. “Despite the challenging local F&B environment, the group remains profitable for 1HFY2019 and in a healthy net cash position. Therefore, the group wishes to reward shareholders for their continued loyalty and support,” the directors of Kimly say in its earnings statement of May 7.

In their May 9 report, RHB analysts Jarick Seet and Lee Cai Ling, are maintaining their “neutral” call and price target of 23 cents. “Ongoing investigations on the matter are likely to be an overhang on the stock and generate some negative sentiment. We believe any potential upside will be limited, despite Kimly’s reasonable valuations,” they write. Kimly closed on May 29 at 23.5 cents, which implies a historical price-to-earnings ratio of just over 12 times.

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