Kimly Group (IPO)

One of the leaders of Singapore's heartland food culture, Kimly Group is tapping onto capital markets to raise funds for business expansion. If successful, it will be the first traditional coffee shop operator to list on the SGX.

Kimly is issuing 173.8m new shares at $0.25 apiece, of which 3.8m will be for public subscription, while 170m are for placement. Post‐issue, chairman and founder Lim Hee Liat will hold a 42.4% stake (prior: 49.94%).
Kimly's business centres around two main divisions namely, outlet management (coffee shop and food courts) and food retail. Under outlet management, Kimly manages and operates a portfolio of 56 coffee shops, three industrial canteens and five food courts across Singapore. Each outlet has an average of 8‐12 food stalls, with average seating capacities of 150‐250. The 500 food stalls within its coffee shop portfolio has managed to attain a 98% occupancy rate, due to the operator's special attention to details, such as the location and environment of the outlets.

Kimly's food retail division operates and manages 121 food stalls across Singapore, comprising stalls selling dim sum (43 stalls), mixed vegetable rice (36 stalls) and "Zi Char" (29 stalls). In its most recent FY16 results, net profit grew 6.9% to $24m on revenue of $172.2m (+10.4%), led by growth across both outlet management (+10.7%) and food retail (+10.1%). This was due to new outlets and stalls that commenced operations during the year. Gross margin remained relatively stable at 21.6% (FY15: 21.5%).

The group is looking to raise net proceeds of about $40.4m which it intends to use for:
1. General business expansion (75% of net proceeds) So far, its financial performance has been underpinned by establishing new food outlets and stalls. It intends to continue doing so, while at the same time refurbishing and renovating existing outlets to enhance the dining experience for its customers. It typically conducts refurbishment for every outlet once every 10 years.
2) Upgrading of its central kitchen (12% of net proceeds) To cater to its expanding food stalls portfolio, it intends to acquire new equipment and machinery, as well as expand its Central Kitchen.
3) Development of IT systems (5%). With the advancement of mobile and digital payment systems, it believes that the implementation of a cashless electronic payment system will be timely. In addition, the increase in demand for online food delivery services could present another growth frontier for the group.

Based on its proforma FY16 earnings and its 50% dividend payout policy, the IPO would value Kimly at 12x FY16 P/E and 4.2% dividend yield versus peers such as Jumbo (28.5x, 2.5%) and Japan Foods (19.8x, 4.4%).