Kimly Ltd (SGX: 1D0) is one of the largest traditional coffee shop operators in Singapore and manages an extensive network of 68 food outlets and 130 food stalls across Singapore. The group also recently acquired a chain of Japanese restaurants, Tonkichi, and a confectionary business called Rive Gauche.
Investors may be wondering if Kimly will be able to continue its growth trajectory post-IPO, as the coffee shop scene in Singapore is fragmented and tough to manage properly. Let’s look at various aspects of Kimly’s business to assess if the group has good growth potential.
Serving up a good brew
Kimly has two main divisions: outlet management as well as food retail. The outlet management division operates and manages 67 food outlets that comprise 60 coffee shops, four industrial canteens, and three food courts under the Foodclique brand. The food retail division sells cooked food through nearly 130 self-managed food stalls, while the central kitchen supplies sauces, marinades, and semi-finished products to all the food stalls.
The coffee shops are planning to serve up a new brew with Kimly’s own brand of iced coffee and iced tea, and the plan is to launch this in the third quarter of FY 2019. The group is also planning to secure three to five new locations per year for coffee shops, taking the total number of coffee shops from 60 to 70 by the fiscal year ended 30 September 2019.
In Kimly’s recent Q2 2019 earnings release, the group reported a 4.7% year-on-year rise in revenue, but higher expenses caused net profit to tumble 13.2% year on year. Despite this, Kimly’s balance sheet remains rock-solid, with cash of S$86.5 million and no debt. This positions the group for growth through acquisition of coffee shops using its cash hoard, and there is also an option to gear up slightly as well.
Operating cash inflow was very strong, coming in at S$24.6 million in just the first half of FY 2019. Capital expenditure was just S$1.6 million, which meant S$23 million of free cash flow was generated. This enabled Kimly to double its interim dividend from 0.28 Singapore cents to 0.56 Singapore cents, despite the weaker results.
Clear initiatives and plans
Kimly communicated clear growth plans and initiatives in its December 2018 corporate and business update. A customer rewards program will be rolled out to promote repeat patronage, while the 2,000-square-foot central kitchen for Rive Gauche will be relocated from Tuas to Woodlands by the second half of FY 2019.
Kimly’s three central kitchens have been updated as of the end of Q2 FY 2019. The larger spaces will be able to handle increased levels of food production for each of Kimly’s food-stall segments (Zi Char, Dim Sum, and Mixed Rice).
Prospects look bright
In light of the above, prospects for the group appear bright. Not only is there room for growth in its coffee shop segment, but the expansion of the central kitchens should also lower costs and streamline production, resulting in higher margins. Kimly’s strong balance sheet and healthy cash generation also provide the group with options to acquire complementary businesses or food concepts to add to its stable of brands. For FY 2018, the group paid out a total dividend of 0.96 Singapore cents, representing a dividend yield of 4% at the last traded price of S$0.24.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang doesn't own shares in any companies mentioned.