The First Coffee Shop Operator to list on SGX – Kimly Ltd

  • SGX lists 11 Restaurants and three Food Retail stocks with a combined market capitalisation of about S$20.0 billion. These 14 stocks averaged a total return of 9.8% in the year-to-date. The three strongest performers in the YTD were LifeBrandz, Dairy Farm, and ABR Holdings.
  • Singapore’s F&B industry is a substantial contributor to the domestic economy and the contribution is increasing due to rising affluence, GDP and population growth, increased popularity of food delivery services.
  • Kimly Ltd, the first coffee shop operator to list on SGX, makes its trading debut on Catalist today. The company has a net cash position and intends to pay out no less than 50% of net profits attributable to shareholders as dividends.
There are 14 stocks categorised as Restaurants and Food Retail by the Global Industry Classification System (GICS®) that are listed on SGX. This cluster of stocks has a combined market capitalisation of about S$20.0 billion, with businesses ranging from restaurants and supermarkets to dance clubs and pubs.

 

These 14 stocks have averaged total returns of 9.8% in the year-to-date and 14.6% in the last one year. The three strongest performers in the YTD were LifeBrandz (+100%), Dairy Farm (+24.5%) and ABR Holdings (+12.7%).

 

Overview and Drivers of Singapore’s F&B Industry

 

The Food & Beverage (F&B) industry is an important component of the Singapore economy. According to independent global advisory firm Oxford Economics, Singapore’s F&B industry contributed S$14.4 billion or about 0.8% to its GDP in 2014 and employs nearly 300,000 people. Specifically, sales of food and beverages by Singapore’s food services sector (i.e. restaurants, food courts, cafes and food hawkers) contributed S$3.4 billion (or 24% of the overall industry) to 2014 GDP.

 

Some macro-economic drivers that could impact Singapore’s F&B industry include:

  • Consumer spending – demand for F&B services increases when consumers spend more. According to a MasterCard survey on consumer dining habits, Singapore consumers spent an average of US$198 (or S$248) a month dining out in 2013, higher than the Asia Pacific average spend of US$140.
  • GDP and population growth – size of Singapore’s F&B industry could increase along with GDP growth as Singapore’s economy is expected to expand by around 0.7%-2.3% in 2017, according to a survey by MAS. Singapore’s population is also growing at an average of 1.3% YoY, which will further boost consumer demand for F&B services.
  • Increasing consumer affluence – the total sales value of Singapore’s F&B services (which include restaurants, fast food outlets, food caterers, and other eating places) in Jan 2017 was estimated at S$739 million, a 3.5% increase YoY. The average Singaporean monthly household expenditure also increased 40.9% from 2003 to 2013, according to a survey by the Singapore Department of Statistics.
  • Food delivery services – online platforms that provide delivery services have gained increasing popularity and market share from consumers over the last few years, further supporting and driving demand for F&B services.

 

Kimly Ltd’s Catalist IPO

 

Kimly Ltd, the first coffee shop operator to list on SGX, makes its trading debut on Catalist today. Some key extracts from an interview with the Executive Chairman, Mr Lim Hee Liat, include:

 

Catalysts and Management Outlook

  • The company plans to increase total number of outlets via acquisitions
  • Expand the company’s online presence and offerings on online food delivery services platforms
  • Expand range of food products in its Food Retail Division
  • Increase automation and use of technology in its operations to boost efficiency and productivity

 

Company Strengths by Management

  • Familiarity with Singapore’s F&B industry, given that the company has been in the business for over 25 years
  • Economies of scale through their large portfolio of 64 food outlets under management and 121 self-managed food stalls
  • Strong long-term relationships with stall owners
  • Mr Lim said the strength of its Food Retail Division (set up in 2000) offers revenue diversification and helps mitigate the industry’s intense competitive pressure. According to anecdotal evidence from him, Kimly has a lower vacancy rate as compared to industry peers.

 

Key Risks by Management

  • Shortage of manpower – to mitigate this, the company hires staff on a flexible work schedule
  • Renewal of coffee shop leases from landlords
  • Centralised kitchen could help increase efficiency but the quality of food may be compromised

 

Financials from IPO Prospectus

  • According to unaudited pro forma financial statements from the IPO prospectus, the company generated S$172.2 million in revenue, while profit attributable to owners was S$24.0 million for the FY ending 30 September 2016 (FY16). This represents a revenue CAGR of 7.6% and profit CAGR of 9.5%.
  • The company also generated an operating cash flow of S$28.3 million in FY16, representing 16.4% of its total revenue. The company also has S$34.4 million of cash and bank balances on the balance sheet at the end of FY16. Management also intends to pay dividends of not less than 50% of its net profits attributable to shareholders. Assuming the company paid out 50% of its profits in FY16, it will imply dividend per share of approximately S$1.05 cents (or 4.1% dividend yield based on the offer price of S$0.25).

 

Valuation

  • According to the prospectus, Kimly’s unaudited pro forma EPS in FY16 was at S$2.08 cents (based on the post invitation share capital). This implies a FY16 price-to-earnings (P/E) ratio of 12.02x, or 12.44x (assuming the Service agreements had been in place since beginning of FY16) based on the IPO price of S$0.25.
  • The average market capitalisation-weighted P/E ratio of the 14 Restaurant and Food Retail stocks listed on SGX is 25.8x. This compares with Kimly’s P/E of 12.4x.

 

List of Restaurant and Food Retail Stocks (GICS®)

 

Name SGX Code Market Cap S$M Total Return YTD % Total Return 1 Yr % Dvd Ind Yld % P/E* P/B* ROE % GICS® Sub Industry Name
Dairy Farm Intl Hldgs D01 16,979 24.5 58.9 2.3 26.0 8.1 32.6 Food Retail
Sheng Siong Grp OV8 1,406 -1.1 14.3 4.0 22.5 5.6 25.2 Food Retail
Jumbo Grp 42R 433 9.3 54.5 1.4 29.2 6.9 25.5 Restaurants
BreadTalk Grp 5DA 366 11.6 26.6 1.9 31.9 2.8 8.8 Food Retail
ABR Hldgs 533 161 12.7 16.7 2.8 26.8 1.5 6.7 Restaurants
Japan Foods Hldgs 5OI 76 11.4 18.6 4.5 19.0 2.4 12.9 Restaurants
Soup Restaurant Grp 5KI 52 -9.8 -3.9 1.8 51.4 5.5 12.1 Restaurants
Sakae Hldgs 5DO 49 2.9 -10.3 N/A N/A 1.5 -34.2 Restaurants
Katrina Grp 1A0 49 -4.4 N/A 277.3 N/A N/A 31.2 Restaurants
Tung Lok Restaurants 2000 540 30 8.8 30.6 N/A 30.5 1.9 6.6 Restaurants
Pavillon Hldgs 596 18 2.2 -8.0 N/A 28.8 0.6 -0.8 Restaurants
LifeBrandz L20 12 100.0 33.3 N/A N/A N/A N/A Restaurants
P99 Hldgs 5UV 11 -15.5 22.5 N/A N/A 1.3 -22.3 Restaurants
Chaswood Resources Hldgs 5TW 7 -15.8 -64.4 N/A N/A 0.9 -69.3 Restaurants
Average 9.8 14.6 37.0 25.8 7.6 2.7

Source: SGX, Bloomberg & SGX StockFacts (data as of 17 March 2017)

*Market-capitalisation weighted

 

Additional Information from IPO Prospectus (click here)

 

Company Background

 

Kimly was founded by its Executive Chairman, Mr Lim Hee Liat, together with several of his friends (including Mr Peh Oon Kee) in 1990. With more than 25 years of experience, the company believes its founding shareholders have in-depth knowledge of the coffee shop industry. Based on feedback from its suppliers, the company believes they are the largest traditional coffee shop operator in Singapore.

 

Business Overview – 2 Divisions

  • Outlet Management Division – At the date of the IPO offer document, Kimly operates 64 food outlets which include 56 coffee shops, three industrial canteens and five food courts in Singapore. Of which, 54 are under the Kimly brand, five under a third-party brand, and another five under the “foodclique” brand.
  • Food Retail DivisionThe company’s Food Retail Division is primarily carried out by Kimly Food Holdings and Chodee Food Holdings and operates Mixed Vegetable Rice, Seafood “Zi Char”, Dim Sum and Teochew Porridge stalls at several of the food outlets that they operate and manage. Kimly’s Central Kitchen also prepares sauces, marinades, and semi-finished food products which are then supplied to their Mixed Vegetable Rice, Seafood “Zi Char” and Dim Sum stalls.

 

IPO Details

  • Offer price at S$0.25
  • 173.8 million new shares – comprising 3.8 million offer shares to members of the public in Singapore and 170 million placement shares to members of the public and institutional investors in Singapore.
  • Estimated IPO market capitalisation at S$288.7 million
  • Use of IPO gross proceeds (S$43.5 million)
    • S$30.4 million – Acquisitions, joint ventures, and general business expansion (including establishment of new food outlets)
    • S$3.0 million – Refurbishment and renovation of existing food outlets
    • S$5.0 million – Headquarters/Central Kitchen upgrading
    • S$2.0 million – Productivity initiatives/IT
    • S$3.1 million – Listing expenses

 

Pre-Invitation Investors

Kimly also entered into an investment agreement with Vanda 1 Investments Pte. Ltd (managed and controlled by Heliconia Capital Management) and ICH Gemini Asia Growth Fund Pte Ltd (managed by ICH Gemini Pte Ltd). These two institutions (i.e. pre-invitation investors) collectively hold 25 million conversion shares in the company (representing 2.17% of the company’s post-invitation share capital). Kimly’s directors believe the investments by the Pre-Invitation Investors add strategic value to the Group and allow the company to tap on their expertise and knowledge.

 

Source: http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/mu_20032017_1