Maintain BUY, with a new SGD0.46 TP from SGD0.43, 24% upside. Kimly has acquired ASC for SGD16m. The latter is involved in the domestic manufacturing & distribution of a variety of beverages. This includes the Asian Story line, which has a 7.7% local market share. If we assume a PBT of SGD2m for FY18, this acquisition will be completed at ~14-15x P/E, fairly reasonable for a high-growth beverage firm. It also complements Kimly’s business model and provides an overseas expansion angle to the mix. With accretion from the acquisition, we raise our DCF-backed TP. Note that Kimly is one of our Singapore mid-cap picks, and we are one of only two brokers covering this counter.
Kimly has acquired Asian Story Corp (ASC) for SGD16m in cash. ASC’s
Asian Story brand portfolio comprises nine different drinks. This brand has a
7.7% market share and is ranked 3rd largest in the domestic Asian drinks
market. We understand that it will also be distributing Pepsi and coconut water
in the near term. With more beverages in its arsenal, especially Pepsi, this
could further boost ASC’s profitability. In addition, Kimly could actually replace
its current canned drink choices with the beverages ASC distributes, which is
likely to further boost the latter’s bottomline. This is in turn should benefit Kimly,
as it owns 100% of ASC.
Management is keen to expand Asian Story into other countries. This
brand is currently distributed by Pokka Corp in Singapore, Malaysia and Brunei,
and is in the midst of working with a foreign partner to distribute the beverages
in Thailand. In addition, there are also plans to join a few trade shows in
Europe, as Kimly has noticed the increasing demand for Asian beverages there.
This is due to the growing number of Asians residing in this region.
Acquisition done only at 14-15x FY18F P/E. With the first three months of
PBT already reaching SGD0.55m despite a PBT of just SGD1.15m in FY17, the
growth signs are very encouraging. We understand the introduction of Pepsi, as
well as its new bandung drink into the mix, has boosted profitability. With more
beverage types like coconut water – coupled with the replacement of drinks at
Kimly’s drink stores and coffeeshops, as well as the overseas expansion plans
– we foresee that a FY18 PBT of SGD2m is achievable. We also expect a FY19
PBT of ~SGD3m due to the aforementioned factors.
Maintain BUY, with our DCF-based TP raised to SGD0.46 from SGD0.43,
24% upside. Despite the amortisation of intangibles for this acquisition likely
increasing by SGD2m/year for the first 30 months, the longer-term growth, profit
accretion and cash flow to Kimly will be quite positive, in our view. As a result,
even after adjusting for a maximum earn-out – which includes SGD3m worth of
new shares being issued at SGD0.40 each – our DCF-backed TP has been
raised. With SGD50-60m in cash remaining, we think there will likely be more
similar style acquisitions to come, which should further propel Kimly’s
profitability. Key risks to our call include a rise in rental rates and labour
Source : RHB Research