A prime heartlands gem

■ Koufu received cash offer of S$0.77/share from its founders to take it private, making it possibly the 3rd F&B company to delist from SGX since 2020.
■ The implied valuation for Koufu is 16x CY22F P/E; we view this as positive to Kimly, which currently trades at a notable discount of c.13x.
■ Kimly is also in a net cash position, rides on structural growth trends, and offers a sustainable dividend yield of c.4%. Reiterate Add and TP of S$0.56.

Koufu looks to delist from SGX

On 29 Dec 2021, F&B peer Koufu received from Dominus Capital (a holding company wholly owned by the group’s founders) the offer to take it private. The offer is all cash at S$0.77 per share, a 15.8% premium to its last traded price (prior to the announcement) and 15.3% premium to its 1-year VWAP. Reasons for the offer were 1) Koufu does not need funding from equity capital markets, 2) low trading liquidity of Koufu shares, 3) for greater management flexibility in both strategy and operations, and 4) removal of compliance costs associated with maintaining a listing status.

Offer highly likely to go through; good chance to cash out

We think the privatisation is highly likely to go through. The offer price is attractive, in our view, as it is close to Koufu’s all-time high share price since the company got publicly listed in 2018. The offer price implies valuation of c.16x FY22F P/E, comparable to our target P/E multiple of 17x. Free float is also low; Koufu’s founders already have deemed interest of 77.41% (via Jun Yuan Holdings) and only require an additional 12.59% (90% stake) to compulsorily buy out Koufu’s remaining shares from dissenting shareholders. Should this privatisation go through, Koufu will be the third F&B company to be delisted from the SGX since 2020 (the other two being Breadtalk and Neo Group).

Kimly currently trades at an attractive discount

We see this as a positive for Kimly, as it currently trades at an undemanding valuation of c.13x CY22F P/E (-1 s.d. from 5-year historical mean), a notable discount to Koufu’s privatisation valuation of c.16x P/E. Meanwhile, Kimly continues to benefit from structural trends of hybrid work arrangements becoming increasingly prevalent (which supports footfall at heartland outlets) and growing demand for online food delivery. We also expect sequential earnings recovery in 1H22F as footfall recovers upon the easing of dine-in measures locally since Nov (currently at 5-pax cap). Kimly is also backed by net cash of S$71m as at end FY21 (14% of current market cap), which we think should contribute to continued outlet expansion of c.3 outlets per year, and sustainable dividend yield of c.4%.

Reiterate Add with TP of S$0.56 for the prime heartlands player

Reiterate Add and TP of S$0.56, pegged to 16.8x CY22F P/E (+0.5 s.d. from 5-year historical mean) in view of the group’s favourable growth prospects. Kimly remains our sector top pick. Potential re-rating catalysts include further easing of dine-in measures and accretive M&As. Downside risks include slower-than-expected footfall recovery and tightening dine-in measures.