Koufu Group - DBS Research 2020-03-02: Growth Leveraging On Higher Operating Efficiencies


Koufu Group - Growth Leveraging On Higher Operating Efficiencies

  • Koufu's core 4Q19 earnings of S$9.6m driven by higher store count and better margins from operating efficiency.
  • Final DPS of 1.5 Scts declared.
  • Long term growth underpinned by a larger store network and better operating scale.
  • Maintain BUY and S$0.84 Target Price.

4Q19 earnings in line, growth led by new outlets.

  • Koufu (SGX:VL6)'s core net profit of S$9.6m (+27.5% y-o-y) was in line with our estimate. Revenue grew 5.7% y-o-y to S$60.3m, while EBIT grew 41.2% to S$12.7m.
  • Revenue growth was led by F&B Retail Segment which was 10% higher at S$30.1m, driven by more kiosks and self-operated F&B outlets. Outlet and mall management segment grew by 1.9% to S$30.2m on a higher number of foodcourts. New outlets included six food courts and coffee shops, 20 F&B kiosks and 2 full-service restaurants.
  • A final DPS of 1.5 Scts was declared, with total DPS of 2.5Scts for the year, equivalent to 50% payout.

Higher margins, better operational leverage.

  • Core net margin rose 2.7ppt to 15.9% largely due to better operational leverage. While gross margin declined by 0.2ppt to 84.8%, headline operating margin which included the impact of FRS (I) 16, increased by 5.3ppts to 21.1%, as operating cost-to-sales ratio dropped by 5.6ppts to 63.7% as higher sales in existing outlets helped contribute to the better operating leverage and margins. Core pre-tax margin was higher at 19.1% (+3ppts).

Store expansion continues.

  • Koufu will add a minimum of two coffeeshops in Singapore, one foodcourt in Macau, one foodcourt in Singapore and two R&B Tea outlets in Singapore in 1Q20. It will also be looking to expand R&B Tea in Indonesia. Its integrated facility is expected to obtain its temporary occupation permit by 1H 2020.

COVID-19’s impact already reflected in our FY20-21F earnings.

  • We had previously highlighted that Koufu would be marginally affected by the COVID-19 virus (especially in Macau which contributes about 10% of revenue) and have factored in its impact in our projections. We have already reduced FY20-21F net profit by 4-5% as a result of that.

Maintain BUY and S$0.84 Target Price.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2020-03-02
SGX Stock Analyst Report BUY MAINTAIN BUY 0.840 SAME 0.840