• Kimly (SGX:1D0)’s 1HFY22 PATMI fell 14.7% y-o-y, forming 58.5% of our full-year forecast. The underperformance was largely due to higher operating costs. Revenue from the food retail segment grew 61.4% y-o-y, driven by the completed acquisition of Tenderfresh.
• Kimly maintained its high net cash balance of S$41.4m.
• We see limited upside at current levels, coupled with the absence of any near-term catalysts. Maintain HOLD rating on Kimly with a lower target price.

Kimly's 1HFY22 Results

• Margins under pressure. For 1HFY22, Kimly reported strong revenue growth (+27.9% y-o-y) but recorded negative PATMI growth (-14.7% y-o-y), forming 55.5% and 58.5% of our full-year forecasts respectively, beating our expectations. The surge in revenue was due to S$37.4m in revenue contribution from the completed Tenderfresh acquisition (Tenderfresh).
• PATMI fell 14.7% y-o-y as increasing operating costs along with higher selling and administrative expenses from Tenderfresh impacted margins.
• 1HFY22 gross margins dropped by 2.5ppt due to lower government grants and higher utilities costs.
• Kimly declared a similar interim dividend to 1HFY21 of 0.56 cents/share.
• Weak performance from operating business segments. 1HFY22 revenue contribution from the food retail segment surged (+S$36.8m, +61.4% y-o-y), boosted by timely revenue contribution from Tenderfresh. Excluding Tenderfresh, revenue for the segment would have softened (-S$0.6m, -1.0% y-o-y). Also, revenue from the remaining outlet management (-S$2.1m, -3.6% y-o-y) and outlet investment segments (-S$0.3m, -10.8% y-o-y) fell as lower footfall and restricted dining in capacity of two per group, caused by COVID-19 social restrictions, impacted sales of beverages and tobacco at most of Kimly’s coffee shops.
• Robust balance sheet still intact. Kimly has maintained its strong balance sheet and net cash position of S$41.4m at end-1HFY22 (end-2HFY21: S$70.6m). The lower net cash balance was largely caused by the utilisation of internal cash for Tenderfresh. Armed with a strong balance sheet along with strong operating cashflows due to its cash-generative business,
• Kimly has consistently kept its policy of paying out more than 50% of annual earnings, which would imply a decent dividend yield of 3-4% going forward.

Source: UOB Kay Hian Research - 13 Jun 2022