Tailwinds subsiding

■ We see tailwinds subsiding due to Singapore’s significantly-relaxed Covid-19
measures since Apr. Workers return to office could impact Kimly’s footfall.
■ We also expect further margin compression in 2HFY9/22F arising from higher
raw material and staff costs. We lower our FY22-24F EPS by 9-17%.
■ Downgrade to Hold with a lower TP of S$0.41, now pegged to 15.4x CY23F
P/E (vs. 16.8x previously), based on -0.5 s.d. from 5-year historical mean.

1HFY22 helped by Tenderfresh contribution and easing restrictions

Kimly reported 1HFY9/22 net profit of S$19m (+6% hoh, -15% yoy), in line with our
expectation at 51% of our full-year forecast but slightly below consensus’ at 48% of
Bloomberg consensus FY22F. Revenue rose to S$157m (+35% hoh, +28% yoy) due to
higher-than-expected contribution (S$37.4m) from newly-acquired Tenderfresh
(consolidated since 1 Oct 2021). However, this was offset by higher cost pressure which
negatively impacted margins. An interim dividend of 0.56 scts (flat yoy) was proposed.

Singapore’s reopening could impact Kimly’s footfall

Singapore dropped most of its pandemic restrictions in Apr, with significantly eased
border measures and working from home no longer the default. As the bulk of Kimly’s
outlets are located in residential heartlands, we think it could be impacted by lower
footfall as employees gradually return to their workplaces. This could be cushioned
partially by rising inflation (which might cause downtrading among consumers towards
mass-market dining options) and removal of dine-in group size limits (which could
especially benefit zichar and drink store sales). Kimly also announced that its
management agreements of nine coffee shops under a third-party brand will be
terminated in 2HFY22F, following this brand owner’s internal reorganisation; we estimate
c.5% revenue impact on Kimly’s FY23F outlet management segment from this.

Further margin compression from rising costs

Kimly’s OPM shrank 6.2% pts yoy in 1H22 on the back of higher food costs, staff
expenses and utilities expenses. While pricing adjustments have been made in 2QFY22,
we think those could be insufficient to cover the continued cost elevation in recent
months. We cut our FY22F EPS by 8.7% to factor in lower margins as we think Kimly
could see near-term margin pressure due to the time lag in cost past-through. Kimly has
also flagged manpower shortage as the key reason for closing 12 underperforming food
stalls; we lower our FY23-24F EPS by 13-17% to reflect lower store count assumptions.

Downgrade to Hold as tailwind subsides, TP lowered to S$0.41

We downgrade Kimly from Add to Hold, as tailwinds subside with post-Covid economy
reopening. Our TP declines to S$0.41, now pegged to a lower 15.4x CY23F P/E (-0.5 s.d.
from 5-year historical average) from 16.8x previously, in view of the group’s slowing
growth prospects. Upside risks include faster outlet growth, and accretive M&As.
Downside risks include weaker footfall, higher cost pressures, and more outlet closures.