Koufu Group - UOB Kay Hian 2019-07-09: Expanding Tea Brands Into Indonesia On Good Demand


Koufu Group - Expanding Tea Brands Into Indonesia On Good Demand

  • KOUFU GROUP (SGX:VL6) has entered into a JV to expand its Supertea and R&B Tea brands into Indonesia, with the first outlet expected to open in 3Q19. If executed well, the JV should lift earnings by 1-2% for 2020.
  • Koufu is also in active talks to expand into Malaysia and the Philippines. Maintain BUY and PE-based target price of S$0.95. Koufu is undervalued at 10.7x 2019F ex-cash PE, vs peer average of 21.1x 2019F PE.


Expanding Supertea and R&B Tea brands into Indonesia to capture vast market potential.

  • On 4 Jul 19, KOUFU GROUP (SGX:VL6) announced that it had entered into a JV agreement to expand the Supertea and R&B Tea brands into Indonesia. Koufu will have an effective 32.4% stake in the JV. With an initial focus on Jakarta’s Grade-A malls, Koufu plans to progressively expand their footprint across Indonesia. See Koufu's announcements.
  • Koufu’s decision was also motivated by popular demand - particularly requests from Indonesian tourists to bring the brand to Indonesia. Data from GrabFood indicates that bubble tea is the second most popular item ordered on GrabFood in Indonesia, Singapore and Malaysia. In addition, they are ranked third in terms of average monthly bubble tea consumption.
  • Koufu’s JV partner, Dato Seri Koay Hean Eng, is the founder and CEO of Kobay Technology Bhd, a Malaysian Stock Exchange-listed property developer. Dato Seri Koay brings with him strong connections within the property sector and rich experience in overseas ventures.

R&B Tea and Supertea brands have been great success stories in Singapore.

  • Koufu has a good in and profitability the tea in Singapore a span years. From the Singapore in, Koufu has aggressively 17 R&B Tea and a outlet Singapore at 30 Jun 19 it to to 30 by.
  • Koufu has also established its first R&B Tea and Supertea outlets in Macau. More importantly, the business has proven to be profitable, breaking even in the first full year of operations, and is expected to contribute meaningful net profit in 2019.
  • Consistent with its track record, Koufu expects the Indonesia JV to contribute meaningfully to the financial performance of the group from 2020 onwards. Assuming a scenario where it expands at the same pace as it did in Singapore, we estimate the JV to lift Koufu’s earnings by 1-2% in 2020.

Potential to expand into more markets.

  • Koufu is active to both the Tea and brands other markets as Malaysia the Philippines.
  • To recap, via its partnership agreement with the owners of R&B Tea and Supertea brands, Koufu has the rights to sell the R&B Tea and Supertea brands in Singapore, Macau, Malaysia, Indonesia, Myanmar and the Philippines. Excluding the countries under Koufu’s licences, there are more than 800 R&B and Supertea outlets in Asia.


We remain positive on Koufu’s ability to deliver 19% EPS growth for 2019.

  • 1Q tends to be seasonally weaker due to a short as as extended closures during Chinese New. With the full-year contribution from Rasapura, new outlets ramping up and steady roll-out of R&B Tea outlets, we think net profit for 2019 is on track to meet our expectations.


  • 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, based on 18.1x 2019F PE, pegged to a 14% discount to peers’ average PE.


  • Sale of two central kitchens and special dividend.
  • Better-than-expected contribution from R&B Tea.
  • Better-than-expected performance from food court management segment.

Joohijit Kaur UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-07-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950