Koufu Group Ltd - DBS Research 2019-02-28: Marina Bay Sands Outlet To Drive Growth


Koufu Group Ltd - Marina Bay Sands Outlet To Drive Growth

  • KouFu’s 4Q18 earnings in line, growth driven by more new foodcourts and better operating leverage. 
  • Final DPS of 1.2 Scts declared. 
  • Possible special dividend of about 2 Scts per share on sale of Woodlands HQ and central kitchen by FY20F. 
  • Maintain BUY, Target Price S$0.80. 

Maintain BUY, Target Price S$ 0.80.

  • We maintain our BUY rating and Target Price of S$0.80 for KOUFU GROUP LIMITED (SGX:VL6).
  • We expect FY19F earnings to recover after a slight decline in FY18, and expect FY20-21F earnings to hold steady as growth is backed by more new foodcourt outlets’ in Singapore and Macau driving revenue going forward. Operation of Marina Bay Sands Foodcourt for the full 12 months this year would support earnings growth as well.
  • Longer term drivers include the setting up of an integrated facility aimed at delivering economies of scale, and overseas growth from Macau.

Where We Differ:

  • We like KouFu Group for its strong cashflow generation capability, defensive earnings, and net cash balance sheet. KouFu’s return on average equity (ROAE) is one of the strongest among peers, at 26.6% for FY19F.
  • Dividend yield is decent at 3.7% on a payout of 50% of earnings.

Potential catalyst.

  • This will stem from realisation of economies of scale over the long term and special dividends from sale of existing central kitchen property before moving into the new integrated facility.


  • The stock currently trades at 13.3x FY19F PE. Our Target Price of S$0.80 is based on 17x FY19F PE, pegged to peers’ average (ex- BreadTalk) multiple.

Key Risks to Our View:

  • Key earnings risks include failure to renew leases, inability to secure new outlets, departure of key tenants and food stalls, customers downtrading to hawker centres and coffee shops, competition from foodcourts that offer more attractive propositions (environment, pricing, food quality etc.) to customers.

WHAT’S NEW - 4Q18 results

4Q18 earnings in line:

  • KouFu’s revenue of S$57.1m (+5.3m y-o-y) and earnings of S$7.5m (+3.7% y-o-y) were in line with our estimates. Revenue was driven by Outlet and Mall Management segment which grew 12.3% y-o-y to S$29.6m with F&B retail segment shrinking by 1.3% y-o-y to S$27.4m.
  • A final DPS of 1.2 Scts was declared, bringing total DPS for FY18 to 2.2 Scts.

More new foodcourts with store reductions seen in F&B retail segment.

  • KouFu’s total number of outlets remained largely flat at 156 from 157 in 4Q17 with net increase of two outlets to 64 in Outlet and Mall Management segment and decline of three outlets in F&B retail segment to 92.
  • The decline in F&B retail segment was led by a net reduction in 8 self-operated F&B stalls within its foodcourts.

New outlets driving Outlet and Mall Management segment revenue:

  • 3 new food courts and 1 coffee shop opened in FY 2018 at Fusionopolis, Oasis Terrace, Sengkang General Hospital and Tampines T-Space, which contributed to the positive Outlet and Mall Management segment’s revenue.
  • They were offset by 3 unprofitable food court closures at Star Vista, Marina Bay Link Mall, 1983 A Taste of Nanyang at Marina Bay Sands and 1 coffee shop at Blk 204 Choa Chu Kang Avenue 1.

Operating margins improved on higher depreciation and rents:

  • Gross margins improved to 85% (+1.1ppt) on better cost management despite lower revenues from the F&B retail segment. Gross margin improvement was further supported by a smaller increase in operating costs (+6.3% y-o-y, S$39.5m) largely on higher depreciation (S$2.8m, +31% y-o-y) and rent expenses (S$26.4m, +9% y-o-y).
  • Admin, distribution and staff costs were otherwise relatively flat for the quarter. Operating margins hence improved by 0.5ppt to 15.8% on the better operating leverage. We believe closure of some old stores may have helped to contain operating costs as such as staff costs well.

Growth driven by Marina Bay Sands Foodcourt and new outlets:

  • We see growth for FY19F coming from the full 12- month contribution of 2 (net basis) new foodcourts that opened in FY18, and Marina Bay Sands Foodcourt, which underwent temporary closure from April 2018 to July 2018.
  • The resumption of operations of the Marina Bay Sands Foodcourt and new outlets will support earnings growth going forward.

Maintain BUY, Target Price S$0.80.

  • We leave our earnings estimates unchanged as results are largely in line.
  • Our S$0.80 Target Price is based on 17x FY19F PE. We like KouFu Group for its defensive qualities of strong cashflow, balance sheet, and stable earnings.
  • Dividend yield is decent at 3.7%, while return on average equity (ROAE) is one of the strongest among peers, at 26.6% for FY19F.
  • Ahead of KouFu’s move to its new integrated facility, stock catalyst includes a possible special dividend of about 2 Scts from sale of existing Woodlands central kitchen and HQ by FY20F.
  • Maintain BUY.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2019-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 0.800 SAME 0.800