Koufu Group - UOB Kay Hian 2020-02-12: Novel Coronavirus To Weigh On Earnings


Koufu Group - Novel Coronavirus To Weigh On Earnings

  • Koufu (SGX:VL6) faces a challenging business environment amid the growing number of confirmed novel coronavirus cases. This comes as its Macau operations at Cotai Central and Macau University are impacted by the temporary shutdown of casino operations and higher education institutes.
  • We are also cautious on its Singapore operations due to lower tourist arrivals.
  • Maintain BUY at a 13% lower PE-based target price of S$0.83 as we cut our FY20-21 EPS forecasts by 14% and 9%.


Koufu’s exposure to Macau.

  • Koufu (SGX:VL6) operates two food courts, four F&B stalls and two F&B kiosks in Macau as of 3Q19. The outlets are located at Cotai Central and Macau University (opened in Apr 19) and collectively contributed to 8.6% of total revenue for 9M19.

Steep decline in tourist arrivals in Macau.

  • According to data from the Macau government tourism office, tourist arrivals during the golden week (24-30 Jan 20) plunged 78.3% y-o-y, among which number of China visitors (accounted for 70% of Macau’s tourist arrivals in 2019) was down 83.3% y-o-y.
  • During the SARS outbreak in 2003, tourist arrivals in Macau sustained two straight months of sharp decline (April: -34% y-o-y, May: -37% y-o-y) before moderating in June (-5% y-o-y) and returning to a positive growth of 3% y-o-y in July. In 2H03, tourist arrivals increased 13% y-o-y.
  • We note that the growth recovery in 2H03 was partially boosted by the introduction of the Individual Visitor Scheme (IVS) in Jul 03, which relaxed visa restrictions on travel by individual travellers from mainland China to Macau.

Macau operations further impacted by the shutdown of casinos and higher education institutions.

  • In response to the outbreak of the novel coronavirus, some higher education institutions in Macau (including Macau University) have postponed class resumption post Chinese New Year until further notice.
  • Further, casinos in Macau are to be shut for two weeks at the request of the Macau government, based on an announcement on 4 Feb 20.

Singapore F&B sector to face challenging business environment, based on SARS impact in 2003.

  • Post the first case of SARS in Mar 03 in Singapore, tourist arrivals in Singapore saw double-digit y-o-y declines for six months. Similarly, the Singapore F&B service index suffered declines. Singapore Tourism Board expects visitor arrivals to Singapore to fall 25-30% y-o-y in 2020. Thus, we think Koufu’s Rasapura Masters operations - located at The Shoppes, Marina Bay Sands, which is frequently visited by tourists - could see a fall in sales as footfall drops.
  • In addition, locals may prefer staying at home in the fear of contracting the virus, therefore impacting sales in Koufu’s other food courts and F&B outlets.


Revenue fall and fixed costs to weigh on bottom line.

  • Given the recent developments, we estimate revenue from Macau would be wiped out for one quarter in 2020. We are also less optimistic on the outlook for the Singapore operations and forecast a decline in sales at Rasapura Masters due to low footfall and potentially flat sales from the other outlets as the situation deteriorates.
  • In addition, we believe the drag from fixed overheads (eg rentals) would weigh on margins, further impacting earnings.

Fundamentally, a solid F&B group.

  • Novel coronavirus impact aside, we believe the group is well managed and has solid operations and strong cash-generative abilities. As the most profitable listed F&B group, we believe Koufu would be able to weather the current difficult environment and post an earnings recovery in 2021 once the situation stabilises.


  • We lower our net profit estimates by 3.1%, 14.1% and 8.7% for FY19, FY20 and FY21 as we reduce revenue estimates by 0.6%, 5.0% and 4.0% respectively.



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

Joohijit Kaur UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-12
SGX Stock Analyst Report BUY MAINTAIN BUY 0.830 DOWN 0.95