Analysts are craving for more of coffeeshop operator Kimly as they deem the stock to be a beneficiary of the current Covid-19 situation.
Despite Singapore well into Phase 2 and the government hinting that Phase 3 is “coming soon”, many are still working from home and becoming more price sensitive.
See: Kimly, Koufu stay easy on the pockets and taste buds of Singaporeans
UOB Kay Hian is initiating coverage on Kimly with a “buy” and a target price of 36 cents.
“The advantages of coffee shop operations include boosted earnings given the proximity to the heartlands, where many are working from home, easy access for online food delivery providers and lower price point due to lower operating costs as compared to shopping malls,” says lead analyst Llelleythan Tan in an Oct 9 report, noting that Kimly is Singapore’s largest coffeeshop operator with over 65 coffeeshops islandwide.
In comparison, competitors such as Kopitiam and Koufu operate around 30 and 16 coffeeshops respectively.
As Kimly’s outlets are strategically located in heartland areas near Singaporean’s homes, it is able to benefit from the population working from home.
“As Singapore re-opens its economy following the lifting of circuit breaker measures, Kimly is well-positioned to ride on this as customers start to dine in at Kimly’s multiple restaurant brands,” says Tan.
Meanwhile, with its cash generative nature of its business, Kimly has an impressive net cash balance of $69.3 million (23% of market cap) as of 1HFY2020. This allows it to pay our one of the highest dividends as compared to its local competitors.
“Also, Kimly has begun acquiring more coffee shops to add to its growing portfolio with recent acquisitions completed in 1HFY2020. By doing so, the acquisitions would help boost future revenue and profits when these assets start contributing significantly in three to five years post-acquisitions,” adds Tan.
Similarly, RHB Group Research is keeping its “buy” recommendation on Kimly with an increased target price of 32 cents from 29 cents previously.
Analyst Jarick Seet believes that Kimly is a beneficiary of still high frequency of feed delivery orders, which has formed a new core revenue stream for the group.
“For FY2020, we project for food delivery orders to likely form 15-20% of total revenue. We believe this may be due to the fact that food sold at the company’s outlets is one of the most affordable options among the various food delivery platforms, making it more sustainable for the average family in Singapore in this flagging economy,” says Seet.
In addition, its outlets are well spread all across Singapore – mainly near or below housing estates – this ensures a wide reach for food delivery.
Currently, Kimly boasts a portfolio of 80 food outlets and 134 food stalls, representing an increase of 25.0% and 10.7% since its IPO.
On Sept 9, the company entered into two separate JVs with two coffeeshops located at Bukit Batok and Upper Aljunied, which the analyst predicts should further boost profitability for FY21.
Overall, Seet views the stock as a “defensive yet attractive value proposition”. “We expect Kimly’s business to remain strong amidst this pandemic, and it will likely continue to reward shareholders with attractive dividends. We expect dividends to remain attractive at 4.8% for FY2020,” he adds.
As at 3.30pm, shares in Kimly are trading 5.7% higher at 28 cents or 12.6 times FY20 earnings and 3.2 times FY20 book, with a dividend yield of 5.5%, according to UOBKH’s estimates.
