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Incoming acquisition boost

  • Initiate coverage with BUY, TP of S$0.50
  • Acquisition of 75% stake in Tenderfresh to raise earnings, strengthening Food Retail division
  • Higher-than-expected number of acquisitions from inorganic growth of food outlets to drive further upside to earnings; balance sheet still strong to fund M&A
  • Valuations undemanding at an 11x FY22F PE, against five-year mean of 15x, with 21% EPS CAGR over FY20-23F and decent 4.7% FY22F yield
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Investment Thesis:

Initiate coverage of Kimly with BUY, TP of S$0.50, implying upside of 33%. The stock is trading at an undemanding 12x FY21F PE, c.0.5 SD below its five-year mean of 15x. With a 21% EPS CAGR over FY20-23F and strong cash flow generation supporting a decent yield of 4.7% in FY22F, we see Kimly as an attractive BUY.

Uplift in Food Retail earnings driven by latest acquisition of 75% stake in Tenderfresh business in Oct 2021. The acquisition will add 14 concepts and 41 food stalls to Kimly’s count and will begin its earnings contribution in FY22. Leveraging Tenderfresh’s position in the Halal market, Kimly will be able to reach out to the 14% Muslim population in Singapore. Synergies expected from the acquisition include cross-selling and streamlining of processes. We project a 22% revenue CAGR in FY20-23F for the Food Retail segment.

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More acquisitions to drive further upside to earnings. While we are conservative on the expansion in food outlets (+5 in FY21F and +4 in FY22F), as we understand that there is a limited supply of long-term leasehold coffeeshop properties for sale or lease, there could be further upside to our estimates if Kimly can deliver more acquisitions by using its strong balance sheet to fund inorganic growth.

Valuation:
Initiate with BUY and TP of S$0.50, representing 33% upside. Our TP S$0.50 is pegged to a c.15x FY22F PE, which is its five-year average

Key Risks to Our View:
Resurgence of COVID-19 cases, labour shortages, failure to obtain renew leases, and rising raw material costs.

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