Divestment of confectionery business
- Kimly is divesting its confectionery business (Rive Gauche) to Muginoho Global for S$2.8m to streamline operations.
- The purchase consideration indicates an implied FY22F P/E multiple of c.12x, which we deem fair.
- We reiterate Hold with an unchanged TP of S$0.41 as we expect headwinds from footfall normalisation after Covid-19 highs and rising cost pressures.
Divesting confectionery business
? On 9 Sep 22, Kimly entered into a business transfer agreement with Muginoho Global for the complete disposal of the group’s confectionery business, Rive Gauche Patisserie.
? Initially acquired by Kimly together with Tonkichi for S$1.82m in Jul 18, Rive Gauche is involved in the operation of French-inspired confectionery outlets. As of end-Mar 22, Kimly operated seven Rive Gauche outlets.
? The acquirer, Muginoho Global, is a wholly-owned subsidiary of Muginoho Holdings. Muginoho Holdings is headquartered in Japan and 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.
Implied acquisition multiple of c.12x FY9/22F P/E
? The purchase consideration is S$2.8m. Of the consideration, S$1.8m will be placed in escrow and disbursed to Kimly based on payment milestones.
? The proceeds from the divestment will be used for general working capital purposes.
? Rive Gauche recorded FY9/21 net profit of S$0.4m and 1HFY9/22 net profit of S$0.1m. The purchase consideration of S$2.8m represents a one-off disposal gain of S$2.6m for Kimly upon completion of the transaction.
? Assuming flat hoh growth in net profit in 2H22F, the implied acquisition multiple is c.12x FY22F P/E, which we deem fair.
Reiterate Hold at S$0.41 TP as we see lack of near-term catalysts
? Net cash remains healthy at S$41m as of end-1H22.
? While rising prices could spur some downtrading activities as consumers spend on more affordable food products, we see limited near-term catalysts given 1) post-Covid19 footfall normalisation, and 2) inflationary pressures weighing on margins.
? We reiterate Hold with an unchanged TP of S$0.41, still pegged to 15.4x CY23F P/E (0.5 s.d. below its 5-year historical mean) in view of slowing growth prospects. The stock currently trades at c.14x CY23F P/ (~1 s.d. below its 5-year historical mean).
? Potential upside risks include faster outlet growth and accretive M&As. Downside risks include weaker footfall, higher cost pressures that cannot be passed on, and more outlet closures.
