The resilient heartlands play
? Total F&B sales remained strong in Jan 22 (+10% yoy). Easing of coffee
shop VDS measures could spur greater footfall at Kimly’s outlets and stalls.
? Rising energy and food prices could dampen margins; we think Kimly will
have to absorb some costs. We lower our FY22-24F core EPS by 9-16%.
? Outlook still positive as Kimly rides on WFH and food delivery trends.
Reiterate Add with a lower TP of S$0.54, pegged to 16.8x CY23F P/E.
F&B sales in recovery mode since Nov 2021
According to latest F&B Services Index figures, Singapore’s F&B sales have been in an
uptrend since Nov 21 as dine-in restrictions gradually ease. Total F&B sales in Jan 22
came in strong at S$829m (+10% yoy), the highest level (excluding strong base in Dec
21) recorded since Dec 20. Positively, Dec/Jan F&B sales were only 1%/9% lower than
the pre-Covid-19 average in 2019. Non-restaurant sales were more resilient during Aug
21-Jan 22 compared to restaurant sales (Fig 1). Online F&B sales remained elevated in
Jan 22 at S$241m (+44% yoy), driven by increasing adoption of food delivery.
New coffee shop VDS options could help footfall
Recall that since Nov 21, only coffee shops with vaccinated-differentiated safe
management measures (VDS) in place were eligible for 5-pax per group dine-in capacity;
2-pax otherwise. VDS measures were eased slightly with effect from 7 Mar 22, with
coffee shops now having more flexible options available (see page 3). Previously, we
understand that many coffee shop outlets were reluctant to adopt VDS measures due to
higher manpower costs required. As of Mar 22, Kimly only has c.5 coffee shops (out of
75) with VDS measures in place. With more flexible options at hand, we could see
greater VDS adoption amongst Kimly’s outlets.
Rising input costs could weigh on margins
Energy and food prices have been in an uptrend since the onset of the Russia-Ukraine
conflict in Feb 22. While we believe that Kimly can pass on some of these costs, we think
that Kimly would inevitably absorb some. We remain cautious on our margin
assumptions, as raw material and utility expenses form a significant bulk (FY14-21:
c.40%) of revenue. We lower our FY22-24F core EPS by 9-16% to reflect lower margins.
Reiterate Add at lower TP of S$0.54; decent 4.2% dividend yield
We believe Kimly continues to be a key beneficiary of hybrid work-from-home initiatives
and greater adoption of food delivery services. We reiterate Add with a lower TP of
S$0.54, still pegged to 16.8x CY23F P/E (+0.5 s.d. from historical mean) in view of the
group’s favourable growth prospects. Dividend yield is decent at 4.2%, assuming a
payout ratio of 55%. Re-rating catalysts include easing of dine-in measures and accretive
M&As. Downside risks include slower-than-expected footfall recovery, re-tightening of
dine-in measures and surging costs