Why Has Kimly Ltd’s Stock Price Fallen By 24% In The Last 12 Months?

Kimly Ltd (SGX: 1D0), which was listed on Singapore’s stock market just over a year ago on March 2017, is the largest traditional coffee shop operator in Singapore. It currently operates a chain of 68 food outlets and 129 food stalls under various brands island wide.

Over the last 12 months, Kimly’s stock price has fallen by 24% to S$0.345 currently. What may have caused this?

Reasons for a decline

There can be many reasons behind a stock’s price decline. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profits.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Kimly

In Kimly’s case, I believe the former is the main culprit. Here’s a table showing a condensed income statement for the company for the fourth quarters and whole of FY2017 (fiscal year ended 30 September 2017) and FY2016:

Source: Kimly earnings update

We can see that Kimly’s profit attributable to shareholders in FY2017 declined by 12% despite a 12% increase in revenue. The company’s profit continued declining in the first quarter of FY2018 as shown below:

Source: Kimly earnings update

As you can see, Kimly’s profit attributable to shareholders in the first quarter of FY2018 was 13.9% lower than a year ago. This was mainly due to higher employee costs and depreciation expenses.

The declines in Kimly’s profit may have been the cause for the fall in its stock price.

What’s next?

Despite lower profit, investors should note that Kimly did manage to grow organically in FY2017 with the opening of four coffee shops, one industrial canteen, and 15 food stalls. These investments resulted in an immediate increase in operating expenses but will take time to ramp up sales and achieve economies of scale.

If Kimly can grow these new outlets profitably over the long term, it is likely that its profit declines mentioned above will be short term in nature.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.