Kimly earnings outlook cut by RHB as higher costs hit profitability

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RHB lowered its earnings forecast for Kimly, as higher costs ate into profitability, and pointed to an overhang on the stock amid ongoing investigations.

In a note on Thursday, RHB lowered its forecast for fiscal 2019 profit after tax and minority interests by 5 percent and cut its target price to S$0.24 from S$0.27.

Kimly reported on Tuesday its fiscal first quarter net profit fell 8.2 percent on-year to S$5.3 million despite increased revenue rising 5.0 percent on-year to S$52.6 million, on contributions from newly acquired food brands Tonkichi, a Japanese restaurant chain, and Rive Gauche, a Japanese-French confectioner.

The revenue increase was offset by cost of sales rising 5.1 percent on-year in the quarter to S$42.02 million, in line with the revenue increase, Kimly said. Selling and distribution expenses also increased 55.2 percent on-year to S$1.32 million, partly due to higher online food delivery fees and advertising expenses, while administrative expenses rose 22.7 percent on-year in the quarter to S$3.63 million on increased headcount and salaries, Kimly said.

RHB said that despite the stock’s reasonable valuations it was sticking with a Neutral call.

“We believe any potential upside will be limited,” the brokerage said. “As the acquisition of Asian Story Corp has been called off, our investment thesis is no longer valid. Ongoing investigations on the matter will likely be an overhang on the stock and generate some negative sentiment.”

In December, Singapore’s CAD and the Monetary Authority of Singapore (MAS) had requested documents and equipment related to Kimly’s IPO and its acquisition, now cancelled, of Asian Story Corp. (ASC).

Then, Executive Chairman Lim Hee Liat and Executive Director Chia Cher Khiang were arrested by the Commercial Affairs Department (CAD) for being concerned or reasonably suspected  of being involved in an offence under the Securities and Futures Act section 199, which relates to making false or misleading statements.

Lim told Shenton Wire the two executives would continue to carry out their roles at the company.

“Both Mr. Chia and myself have cooperated fully with the authorities during the current investigation and will continue to do so. There have been no formal charges issued against us,” Lim said in a statement which was emailed to Shenton Wire in December.

Shares of Kimly ended Thursday at S$0.25.

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