Kimly Limited: Initial Public Offering

On March 8, 2017, Singapore-based food outlet operator Kimly Limited (Kimly) announced its intention to go for an initial public offering (IPO). Through this IPO, it aimed to raise SG$43.5 million. Altogether, 173.8 million new shares would be issued at SG$0.25 per share, comprising a retail tranche of 3.8 million shares and a placement tranche of 170 million shares. The chances of successfully getting Kimly’s IPO shares were slim, given the small retail tranche. In addition, the controlling shareholder and other key shareholders were subject to lock-up periods, which would prevent a short-term overhang of the shares. These factors implied that the supply of Kimly’s shares would be scarce in the initial six months after the IPO, which could have a positive impact on the share price. A retail investor, drawn to the issue because of Kimly’s identity as a family firm, applied for the IPO and was also considering purchasing shares in the aftermarket later in March. Was this a worthwhile investment, and if so, what should this investor’s maximum price be? Should such an investor plan to sell immediately or hold for the long term?

This comprehensive valuation exercise can be used in an advanced undergraduate or graduate program in corporate finance or financial management courses. It presents an opportunity for students to (1) compare the performance of Kimly to industry benchmarks, (2) apply various valuation models to determine its share price, and (3) make recommendations to investors. The exercise gives students the opportunity to provide a reasonable valuation of Kimly’s share price for the average retail investor, using three methods: the discounted cash flow model, the dividend discount model, and relative valuation analysis. After working through the exercise, students will have developed their ability to<ul><li>compute an unlevered beta from identified peers;</li><li>determine the weighted average cost of capital;</li><li>undertake a discounted cash flow valuation with sensitivity analysis;</li><li>apply the discounted dividend model; and</li><li>conduct a relative valuation analysis using peer multiples.</li></ul>

• family firm, IPO, relative valuation, discounted cash flow