Koufu Group - UOB Kay Hian 2019-04-09: Beneficiary Of Marina Bay Sands Expansion Plans

KOUFU GROUP LIMITED (SGX:VL6) | SGinvestors.io KOUFU GROUP LIMITED (SGX:VL6)

Koufu Group - Beneficiary Of Marina Bay Sands (MBS) Expansion Plans

  • Las Vegas Sands Corporation (LVS) announced a S$4.5b commitment to expand Marina Bay Sands (MBS) by adding a 1,000-suite hotel tower, a 15,000-seat entertainment arena and additional MICE space. LVS expects a lift in visitor volume and spending once the expansion is completed.
  • With its existing food court within MBS, Koufu Group (SGX:VL6) will be a potential beneficiary.
  • Reiterate BUY and PE-based target price of S$0.95.



WHAT’S NEW


LVS committing S$4.5m to refresh MBS.

  • Las Vegas Sands Corporation (LVS) has committed to expanding Marina Bay Sands (MBS) by adding a 15,000-seat entertainment arena, meeting space and a hotel tower with 1,000 suites. In view of the substantial investment, MBS’ exclusive rights to run a casino in Singapore will be extended until end-30. Also, MBS has the option to add 2,000sqm of approved gaming area.
  • While LVS has not given a concrete timeline for the expansion, we understand the agreement with the Singapore government is for expansion to be completed within eight years.


STOCK IMPACT


Strengthening pole position in tourism shopping.

  • In 2018, The Shoppes at MBS racked up the highest revenue since its opening. According to Global Blue, MBS kept its pole position in tourism shopping, accounting for 25% of the tax-free tourist market in Singapore based on tax-refunded tourist receipts. LVS’ commitment to refresh its Singapore property should strengthen MBS’ position as an iconic tourist destination even as competing properties within the region emerge.

Expansion to drive additional visitations and spending.

  • After completion, the expanded property is expected to drive additional visitations to MBS as well as enlarge the MBS workforce. This bodes well for lessees within The Shoppes as the additional footfall will translate into increased spending.
  • We expect Koufu Group (SGX:VL6)’s Rasapura Masters (Rasapura) to be a major beneficiary, given its relatively affordable price points and unique positioning of housing famous hawker fares.

Potential new outlets.

  • The increased floor space at MBS will likely have new units for tender and we do not rule out the possibility for Koufu to open another outlet. The new outlet will likely be another brand with lower price points to accommodate demand from an enlarged workforce.
  • Previously, Koufu had operated another outlet in MBS under the brand, 1983 – A Taste of Nanyang. This food brand has price points of S$4-12.


EARNINGS REVISION/RISK

  • 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, execution risks on expansion plans and higher-than-expected competition for MBS space.


VALUATION/RECOMMENDATION

  • 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.


SHARE PRICE CATALYST

  • Sale of Koufu’s two central kitchens.
  • Better-than-expected contribution from R&B Tea.
  • Better-than-expected performance from Rasapura Masters.





Yeo Hai Wei UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-04-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950



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