CGS-CIMB Research analysts Ong Kang Chuen and Kenneth Tan have maintained their “hold” call on Kimly Group, but have trimmed their target price from 41 to 39 cents as the group’s management adopt a more cautious tone.
The analysts’ report came after Kimly reported its results for the 2HFY2022 and FY2022 ended Sept 30. For the half-year period, Kimly recorded a net profit of $15 million, which was 12% lower y-o-y and 16% lower h-o-h, in line with the analysts’ expectations but slightly lower than consensus’ expectations.
Kimly’s revenue for its 2HFY2022 rose to $161 million, which stood 39% higher y-o-y and 3% h-o-h. The higher revenue was driven by better outlet management revenue and new contributions from Tenderfresh.
Operating profit margin for 2HFY2022 dipped 4.4% percentage points on the back of rising input, like food and utilities, as well as labour costs.
However, Kimly’s management shared that elevated food and utilities prices are expected to weigh on its operating profit margin in FY2023.
Other factors that will affect the company are manpower issues, stemming from a shortage of qualified food and beverage (F&B) workers and rising wages.
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Ong and Tan says that as the company specialises in mass market F&B options, “we believe the group could benefit from potential downtrading as consumers exercise financial prudency.”
Downtrading is the practice of a consumer switching from expensive brands to cheaper alternatives.
Ong and Tan also think that margin pressure could continue into FY2023, given that Kimly also has taken a cautious stance in adjusting food prices due to the cost-conscious nature of customers. Given this, the analysts therefore lower their FY2023 and FY2024 earnings per share (EPS) forecast by 10%-13%.
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Further to their report, the analysts expect Kimly’s lower store count to impact its earnings moving forward. Kimly, in the 1HFY2022, announced that it intended to terminate the management agreements of nine coffee shops. Only five coffee shops were terminated as of end-2HFY2022, with four more closures expected in FY2023, Ong and Tan observe.
On this, the analysts say they expect Kimly’s revenue to be impacted by 5% on the outlet management segment from the cessation of the nine coffee shops.
In addition, the net closures of seven food stalls in FY2022 and the expected closure of seven more Rive Gauche stores in FY2023 is expected to impact Kimly’s earnings. Rive Gauche is a French-inspired patisserie that is under the Kimly group. Kimly, on Sept 9, proposed to dispose of its patisserie business to Muginoho Global for a proposed consideration of $2.8 million.
That said, Kimly is still targeting to open three to five new coffee shops per year going forward, but the analysts say that “given the uncertain climate, we now expect no net outlet openings in FY2023, resuming from FY2024 onwards.”
“Although we see Kimly as a potential beneficiary of downtrading behaviour, we think this will be offset by slowed outlet expansion and rising costs,” Tan and Ong write.
As of 2.42pm, shares of Kimly were trading at 36 cents, with a FY2023 P/B ratio of 2.47x and dividend yield of 3.7%.
