Kimly downgraded by RHB on overhang from investigation, loss of Asian Story deal

Singapore two-dollar bills

RHB downgraded Singapore coffee-shop player Kimly to Neutral from Buy, pointing to an overhang from Singapore authorities’ investigation of the company and as its the loss of the Asian Story deal hurts its growth prospects.

Kimly said late on Thursday that Singapore’s Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) had requested documents and equipment related to its IPO and its acquisition, now cancelled, of Asian Story Corp. (ASC).

Kimly was requested to produce documents related to the company’s IPO, its acquisition of ASC, IT equipment used by Executive Chairman Lim Hee Liat, Executive Director Chia Cher Khiang and a former non-executive director, Ong Eng Sing, as well as corporate secretarial records from the beginning of 2016, the company said.

RHB pointed to negatives from the developments.

“The ongoing investigations will likely be an overhang on the stock and generate some negative sentiment, with any potential upside likely being limited despite reasonable valuations,” it said in a note on Monday.

In addition, the cancellation of the ASC acquisition “spells negative prospects for Kimly, as it will halt its fast-track growth plans,” RHB said. “Our investment thesis on it becoming a player in the beverage industry, with synergies between its coffee shops, is also now invalid.”

RHB added that it expected Kimly wouldn’t make any other acquisitions soon despite having S$71 million of net cash.

Kimly was likely to have only “inflation-adjusted growth” ahead, RHB said.

After removing ASC from its projections, RHB cut its 2019, 2020 and 2021 profit after tax and minority interests (PATMI) forecasts by 4 percent, 10 percent and 12 percent, respectively. That led it to cut its target price to S$0.27.

The stock was down 1.96 percent at S$0.25 in late trade.

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