Kimly IPO - lessons learnt from others
Kimly's IPO has been one of the hot topics of analysis by all of the financial bloggers this week. According to its product highlights sheet, Kimly Limited is one of the leading operators of traditional coffee shops in Singapore with two main business segments (i) Coffee shop/food court management (ii) Food retail, which operates food stalls supplied by a central kitchen.
The shares are priced at $0.25 a share, and there are 3.8 million shares up for public shareholders, and 170 million placement shares, raising around $43million.
Rather than try and put down my own analysis, which, with my extremely limited experience, is unlikely to be of much value, I looked at a number of financial blogs to look at the different analysis applied to the Company and decided to put down some of my learning points here. It has also been a busy week for me so it is hard to find time to read the offer document cover to cover, and I am glad to have so many sources of analysis by those who have managed to go through it.
A few points seem to recur among the analysis I have seen:
Revenue and Profit Growth: Kimly has a revenue CAGR of 7.6% and a profit attributable to owners CAGR of 9.9 over the last 3 financial years, which is a solid track record.
Comparison with similar companies: The PE Ratio is calculated at around 12x, which is lower than similar food companies such as Jumbo with an average PE of 24x. This is a good indicator that the shares may debut strongly.
Business model: All writers agree that the business model is a defensive one, after all, people always need to eat, no matter how the economy is doing. Furthermore, the coffeeshop business is an asset light one where cashflow turnaround is fast, and the company thus has large cash reserves, with no cash on its balance sheet.
Because of its asset light nature, other bloggers are willing to look past the high price to book valuation of 5x, and consider the Company's free cash flow instead.
Dividends.
Kimly has declared an intention to declare 50% of its profits as dividends, assuming EPS growth of 5%, this will lead to a dividend yield of 4% which is quite attractive,
Some less common but more interesting analysis:
Pre-ipo investors: One of their pre-ipo investors, Vanda 1, is controlld by Heliconia Capital Management, a subsidiary of Temasek. Having Temasek involved in any investment is definitely a great boost in confidence.
However, another blog noted that the pre-ipo investment was only $5m compared to a post listing market cap of $250m, and wonders if the pre-ipo investors were jittery and did not commit too much. Also, the discount of 20% to the ipo price is quite a large discount, again suggesting a lack of confidence from the pre-ipo investors.
Growth Potential
The coffeeshop market is a mature one in Singapore with limited space, and it may be hard to see Kimly being able to use the IPO proceeds to have much expansion. There are also various other players such as kopitiam, koufu, s-11 who Kimly need to beat to maintain their market share. Of note is that they just recently lost their Ngee Ann Polytecnic operations, highlighting an example of this risk.
Execution of future plans
Some other writers take the view that the IPO is a push towards improving branding (since Kimly has good cash flow already and does not really need equity financing), for Kimly to break into the food delivery scene as a new source of growth. If this is the next growth driver, then Kimly's ability to execute on these plans is highly critical.
My concluding thoughts
This has been an educational session for me on how the other investors are thinking through and making use of the information provided to make calculated decisions. Without formal business education, I have to rely on looking at others' analysis to understand possible ways to look at a Company, and, hopefully in time, also be able to weigh the different analysis.
Based on a quick look at the listing documents and more based on the general analysis I have gained from these other writers, I think the numbers look fine, and the industry is one I am familiar with and is indeed recession proof. So, I have put in a ballot to see what comes out of it. However, the small public tranche means I am not too hopeful to get any share in this at all.
Maybe Kimly's IPO will also spark a wave of coffee shop/f&b IPOs in Singapore this year, and will bring in some added vibrancy to our quite slow capital market.
References.
The above refers to the following blog posts:
http://singapore-ipos.blogspot.sg/2017/03/kimly-limited.html
http://singapore-stocks-investing.blogspot.sg/2017/03/KIMLY-GROUP-IPO.html
http://10percentperannum.blogspot.sg/2017/03/kimly-ipo-exciting-stuff.html
http://www.smallcapasia.com/5-minute-guide-for-all-you-need-to-know-about-kimlys-ipo/
http://foreverfinancialfreedom.blogspot.sg/2017/03/kimly-limited-ipo-should-you-be-getting.html
Disclaimer
The above are merely my own personal thoughts for general interest purposes only and does not constitute any form of financial/investment advice or recommendation of any kind, and is not intended to be relied on for any form of financial or investment decision making.
Disclosure of Interests
I have balloted for Kimly shares and as such, the above cannot be taken as an independent view.