Investing into "The Flavours of Life"- Kimly F&B Retail Group.

Since REITs prices have rallied somewhat over the past few days over Christmas period, I decided against investing more into Mapletree Pan Asia Commercial Trust and Link REIT. Instead, I have decided to invest into the F&B group with the "Flavours of Life" slogan- Kimly. Strangely, Kimly Group 's share price has fallen dramatically off its peak of S$0.436 per share back in 2021 while its business have expanded from 148 F&B outlets to 191 F&B outlets from FY2021 to FY2024- see Retail Footprint for details.

1.Retail Footprint

2. Financial Outlook and Dividends Payout + EPS Thoughts

2.1 Strong Balance Sheet with Loads of Hard Cash

I am extremely impressed with the S$98.5Mil of cash on Kimly's balance sheet. Cash is King. This huge pile of cash can be used for immediate business expansion as well as immediate paydown of S$17Mil of short term and long term bank loans during emergency liqudity crunch time.

2.2 Dividends Payout

With a dividend payout of 2 cents for FY2024 and a EPS of 2.55 cents, this means  a payout ratio of almost 80% while retaining 20% earnings in the business. At the market trading price of S$0.325 per share as at 26 December 2024, this represented an extremely attractive dividend yield of 6.15%. 

2.3 EPS on Higher Side- But Need to Consider Room For Growth

Also, Kimly's PE ratio based on EPS of 2.55 cents is about 12.94 times. F&B industry in Singapore (based on data from Simply Wall Street on Singapore Industry) range from PE of 8 to 10 so apparently 12.94 times seems a tad high on SGX. Nevertheless, I thought that its Halal "Tender Best" sub-branded restaturant has lots of room to drive growth & profitability for the future. 

Interestingly, its share price has remained in the S$0.310 to S$0.325 range despite the announcement of its full year financial results and 1 cent final dividends declared on 26 November 2024. Ex-dividend will be on 4 Februray 2025 (Tuesday) and payout date on 14 Februrary 2025 (Friday).

3. Possible Downside Risks

Of course, not all is entirely eventful for Kimly and its management team over the past few years as well as recently. There are a couple of serious downside risks:

3.1 Pokka Deal & Conflict of Interest in 2022

In February 2022, 2 former directors of coffee shop operator Kimly were fined for their role in failing to notify the Singapore Exchange (SGX) that Kimly's acquisition of drinks company Asian Story Corporation (ASC) involved a conflict of interest. This unfortunate incident also led to the disqualifcation of the above mentioned officers of the Group to act as director for 5 years.

3.2 Illquid Stocks As Most of the Share Capital Owned by only a Few Substantial Individual Holders.

The stocks (50%+) are held in the hands of 3 indviduals. General public holds the remainder. Hence trading of this counter is not very liquid. It maybe tought to sell off the stocks during unforseen situation.

3.3 The Competition is Intense in F&B.

There are many rival coffeeshop businesses in operations in Singapore. There are also other F&B operators. I am not sure why some folks think that Kimly is a relatively defensive business with resilient cashflow. The fact is that it is extremely price sensitive and  not all costs can be passed on immediately to customers. For example, we have seen the impact of the recent high inflation on Kimly Group's financial performance. There were also various closure of non-profitable stalls and resturants by Kimly over the past few years. 

3.4 Resignation of Financial Controller of Kimly Group announced on 27 November 2024.

Personally, the resignation of the Head of Finance & Accounting is a downside for me that signals possible other issues internally albeit the standard crafting of the "personnel left to pursue other personal and career opportunities". The Financial Controller joined Kimly in 2021 and then left 3 years later.

It is also strange that the Senior Finance Manager is left to hold the fort and that the Group did not look out for experienced replacement CFOs/Financial Controllers to take over.  

Parting Thoughts

For diversification away from my REITs heavy portfolios, I have decided to invest a small amount (20,000 shares) into Kimly Group given that it has demostrated stable growth in its F&B businesses. While challenges such as intense competition, inflation and cost pressures present great business risks to its profitability, I think that Kimly's senior management is experienced enough to steer the group forward given their vast business acumen and historical track record.