CGS-CIMB Research analysts Kenneth Tan and Ong Khang Chuen have kept their “hold” call on Kimly at an unchanged target price of 41 cents after the company announced the divestment of its confectionary business.
On Sept 9, Kimly entered into a business transfer agreement with Muginoho Global for the complete disposal of Rive Gauche Patisserie. Initially acquired by Kimly together with Tonkichi for $1.82 million in Jul 2018, Rive Gauche is involved in the operation of French-inspired confectionery outlets. As at end-March, Kimly operated seven Rive Gauche outlets.
The acquirer, Muginoho Global, is a wholly-owned subsidiary of Muginoho Holdings. Headquartered in Japan, Muginoho owns a portfolio of pastry and confectionery brands such as Beard Papa’s and Cocofrans.
“We believe the disposal of Rive Gauche was largely due to a lack of realisable synergies with Kimly’s core coffee shop operations,” the analysts highlight.
The purchase consideration is $2.8 million, of which $1.8 million will be placed in escrow and disbursed to Kimly based on payment milestones. Rive Gauche recorded FY2021 ended Sept 2021 net profit of about $400,000 and 1HFY2022 net profit of about $100,000. The purchase consideration represents a one-off disposal gain of $2.6 million for Kimly upon completion of the transaction.
“Assuming flat h-o-h growth in net profit in 2HFY2022, the implied acquisition multiple is about 12x FY2022 P/E, which we deem fair,” say Tan and Ong.
Kimly’s net cash remains healthy at $41 million as at end-1HFY2022. While rising prices could spur some downtrading activities as consumers spend on more affordable food products, the analysts see limited near-term catalysts — given post-Covid 19 footfall normalisation and inflationary pressures weighing on margins.
CGS-CIMB’s target price is pegged to 15.4x CY2023 P/E (0.5 standard deviations below its 5-year historical mean) in view of slowing growth prospects. The stock currently trades at about 14x CY2023F P/E (about 1 standard deviation below its 5-year historical mean).
As at 11.19am, shares in Kimly are trading 0.5 cents higher or 1.4% up at 36 cents.
