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Is Kimly Ltd’s Share Price A Bargain Right Now?

Listed in 2017, Kimly Ltd (SGX: 1D0) is one of the largest coffee shop operators in Singapore. The group operates and manages an extensive network of 67 food outlets and 128 food stalls.

Shares of the company has dropped sharply in recent times. One of the factors for the recent plunge in its price is the scandal that took place after Kimly backed out of its acquisition of Asian Story Corporation (ASC), a beverage manufacturer. The scandal arose when Pokka Corporation (Singapore) signalled its intent to terminate a manufacturing agreement with ASC, leading to Kimly pulling out of its agreement to purchase ASC. Given that Kimly hired ex-Pokka International CEO Alain Ong in September, the news of the no-deal likely alerted the authorities who later arrested two of Kimly’s top executives for “giving false statements”.

Naturally, the market reacted by pushing the share price of Kimly down. With its price depressed, shares of Kimly now trade at just 12.7 times trailing earnings. To put this in perspective, this is the lowest price-to-earnings multiple among the top 10 restaurant stocks in Singapore. This got me interested to take a closer look at the company’s financial track record to see if Kimly’s stock could be a bargain now.

Income statement

Source: Kimly Ltd FY 2018 annual report

As you can see, over the past five years, the group has managed to increase its revenue each year at a compounded annual rate of 6.3%. However, its net profit has been more erratic since its listing in 2017. The group incurred higher expenses due to its listing, including a one-off initial public offering (IPO) expense in 2017 and higher administrative expenses in both FY2017 and FY2018.

Additionally, gross profit margin has also narrowed from a high of 21.6% in 2016, to 20.0% and 19.9% in FY2017 and FY2018 respectively.

Cash flow

Source: SGX StockFacts

Kimly has been generating consistently increasing cash flow from operations from FY2014 to FY2017. The only blip in its track record was in FY2018.  The reason for the lower cash flow from operations was due to an S$17.8 million increase in trade and other receivables. 

The Foolish bottom line

While coffee shop operation is certainly not a “sexy” business, it has proven its resilience over the years The coffee shop culture continues to be a staple part of many Singaporeans’ lifestyles and is here to stay.

Moreover, the ASC scandal could soon be forgotten and Kimly shares may return to a more normal valuation. At the moment, its shares are trading at a low valuation for a company that has shown consistency and has a healthy cash position with no debt. All these could make Kimly a good candidate for further research.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore contributor Jeremy Chia does not own shares in any company mentioned.