Koufu Group - UOB Kay Hian 2020-03-03: 4Q19 Results In Line; Temporary Challenges From COVID-19


Koufu Group - 4Q19 Results In Line; Temporary Challenges From COVID-19

  • Koufu's 2019 net profit of S$27.7m (+13% y-o-y) came in within expectations at 98% of our estimate. Earnings were lifted by new outlets, growth in existing outlets as well as margin expansion.
  • Near-term outlook remains challenging due to business impact from the COVID-19 outbreak, especially for Macau and Marina Bay Sands, but the medium-term outlook is still positive on further expansion.
  • We trim our 2020F EPS by 2%. Maintain BUY with a 2% lower target price of S$0.81.


Results in line with expectations.

  • Koufu Group (SGX:VL6)’s 2019 net profit of S$27.7m (+13% y-o-y) came in within expectations, at 98% of our estimate. Earnings growth was supported by higher revenue contribution from outlet & mall management (+6.3% y-o-y) and F&B retail (+5.9% y-o-y) on the back of new outlets and same-store sales growth (its outlet at Marina Bay Sands was partially closed from April to Jul 18).
  • Core net margin held steady at 11.7%.

Near-term challenges from COVID-19.

  • Koufu is seeing near-term earnings impact at its food courts in Macao and Marina Bay Sands due the lower tourist arrivals. Revenue from both food courts have declined significantly. Although the landlords will provide some rental rebates, Koufu still expects to see negative earnings impact.

New stores.

  • In 2019, Koufu opened five new food courts (one of which is in Macao) and one coffee shop. It also opened seven new F&B stalls in the food courts and coffee shops and expanded its full-service vegetarian restaurant - Elemen - with two new outlets in 2019.
  • For the bubble tea business, it opened 20 kiosks (five were opened in 4Q19), bringing the total number of Supertea R&B Tea outlets to 29, meeting its target of at least 25 outlets by end-19.
  • Koufu also has a steady pipeline of store openings in 2020 with two new coffee shops opening in 1Q20 and has secured two food court leases (one of which is in Macao).
  • For R&B Tea, the group has secured two new locations in Singapore and is looking to further expand the brands in Indonesia in 2020.


COVID 19 outbreak impact.

  • Management shared that the COVID 19 outbreak has impacted the the group’s food courts at Sands Cotai, Macao and Marina Bay Sands, Singapore, which are frequently visited by tourists. While the casinos in Macao have reopened post the 14 days mandatory shutdown (5-20 Feb 20), we are cautious on the recovery in tourist arrivals.
  • In addition, with business continuity plans in place for companies in Singapore which include half of the employees working from home, there is likely a decrease in lunch crowds in food courts. Management did note that performances of outlets at heartlands HDB areas are still relatively stable.

Strong cash position.

  • Koufu’s solid performance and cash generation ability have helped it build a significant net cash of S$90.3m as at end-19, equivalent to 23% of its market capitalisation.

Proposed final dividend of 1.5 S cents.

  • Including an interim dividend of 1 S cents/share, total dividend for 2019 is 2.5 S cents/share. This translates to a payout of 50%.


  • We reduce our net profit estimates for 2020-21 by 2% and 10% respectively to account for the revenue impact from COVID-19.
  • 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.



  • Sale of two central kitchens and 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/ 2020-03-03
SGX Stock Analyst Report BUY MAINTAIN BUY 0.81 DOWN 0.830