Koufu Group Ltd - UOB Kay Hian 2019-03-27: Defensive Staple With A Growth Story


Koufu Group Ltd - Defensive Staple With A Growth Story

  • Koufu held a corporate luncheon to highlight new developments. Management reaffirmed Koufu’s growth strategy, provided details and reported on its progress.
  • Backed by home-ground advantage with an overseas growth angle, Koufu is a bright spark in an industry caught up in cost-cutting initiatives to counter the recent curb in the dependency ratio ceiling.
  • Reiterate BUY and PE-based target price of S$0.95.


Outlet openings are tracking expectations.

  • In 2M19, Koufu Group Limited (SGX:VL6) has opened 2 food court outlets and secured seven locations for R&B Tea/Supertea. In 2019, Koufu expects to bring the total number of food court outlets to 53 (2018: 47), coffee shops to 16 (2018: 15), R&B Tea/Supertea outlets to 30 (2018: 8) and Elemen restaurants to 5 (2018:3).

Focused on running core business.

  • Management had shared that the run-up to an IPO had divided management’s attention between running the core business and ensuring regulatory requirements of the IPO are met. This had resulted, in their view, an inability to optimise the earnings performance of their outlets.
  • Subsequent to listing, management is giving the core business their undivided attention and is confident of unleashing the full potential of its outlets.

Banking on the development of the Greater Bay Area.

  • Koufu has earmarked Macau as a springboard for its expansion within the Greater Bay Area. Management expects a more integrated Greater Bay Area, supported by infrastructure developments such as the Hong Kong-Zhuhai-Macau Bridge, to further develop Macau’s positioning as a tourism hub. The increased accessibility and tourist arrivals should drive growth for Koufu’s Cotai outlet.
  • In 2019, Koufu is also planning to open one food court in Macau University and another in Nova City.

NTUC Enterprise’s acquisition does not impact the industry landscape.

  • Koufu does not expect NTUC Enterprise’s acquisition of Kopitiam to have an adverse impact on the industry landscape. Management continues to see expansion opportunities within the food court segment akin to what we are witnessing in the supermarket space where Sheng Siong (SGX:OV8) continues to compete effectively against NTUC Fairprice.


Steady path of growth.

  • Koufu is on a steady path of growth as management completes the enhancement initiatives of Rasapura Masters (Rasapura) and has a pipeline of six new food courts in 2019.
  • In addition, we expect a steady roll-out of Koufu’s R&B Tea and Super Tea which are highly popular with the younger crowd. We think net profit could grow at double-digit levels from 2019 onwards.

To dispose of central kitchens.

  • Koufu owns two central kitchens at 18 and 20 Woodlands Terrace. We estimate the sale of these properties could bring in S$10m and unlock gains of up to S$8m, which should bump up dividends.


  • We maintain our earnings estimates.
  • Risks include failure to renew leases, inability to secure new outlets, departure of key tenants and food stalls, changing consumer preferences, higher-than-expected competition, and execution risks on expansion plans.


  • Maintain BUY and PE-based target price of S$0.95, pegged to a 10% discount to peers’ average.
  • Koufu’s valuation has not yet matched its growth outlook. Going forward, we see potential price upside, especially in 2019 as the positive impact from the enhancement initiatives for Rasapura, new outlet openings and the steady roll-out of R&B Tea begins to emerge.


  • Sale of its two central kitchens.
  • Better-than-expected contribution from R&B Tea.
  • Better-than-expected performance from Rasapura.

Yeo Hai Wei UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-03-27
SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950