Koufu Group - DBS Research 2020-08-12: Deli Asia To Support Growth


Koufu Group - Deli Asia To Support Growth

  • Koufu's 1H20 earnings below expectations dragged by Circuit Breaker.
  • Cut FY20-21F earnings by 4-35%.
  • Anticipate steady recovery ahead as Circuit Breaker measures ease.

Earnings disappointment led by COVID-19:

  • Koufu (SGX:VL6) reported 1H20 earnings of S$2.5m, below our expectations. Revenue was 26% lower at S$89m, with decline led by F&B retail segment (-32.2% y-o-y, S$41.2m) from lower footfall during the Circuit Breaker. Outlet and Mall Management Segment also fell by 21.5% y-o-y to S$55.9m due to lower rentals collected as rental savings were passed to tenants and stall holders.
  • Stripping out government grants of S$5.5m, core operating profit broke even. Without these grants, 1H20 would have generated losses instead of a S$2.5m profit.
  • An interim DPS of 0.5 Scts was declared, versus 1 Sct last year.

Anticipate gradual recovery:

  • Due to the Circuit Breaker, the poor 1H20 results were widely expected. More importantly, with the gradual opening of the economy post Circuit Breaker, we expect Koufu’s outlook to improve in tandem.
  • We have baked in the poor 1H20 results into our model, and this leads us to cut FY20F earnings by 35%. Our earnings for FY21F is reduced slightly as we factor in gradual recovery in footfall along with new revenue and profit streams from the recent acquisition of Deli Asia.

Recovery and growth to be led by Deli Asia:

  • Koufu announced that it has acquired Deli Asia in July for S$22m. Deli Asia manufactures and produces fried food and dough products, supplies frozen and partial fried food products to third party businesses and retails fried food and dough products under the Delisnacks (52 outlets in Singapore) and Dough Culture (7 outlets in Singapore) brands, respectively.
  • Based on the FY19 disclosed net profit of S$2.435m, the transaction works out to a historical PE of 9.05x, below Koufu’s FY19-21F PE of 12-16x. The EPS accretion is around 9% on normalised earnings of around S$25m.
  • FY21F earnings growth will be led by full 12 months contribution from Deli Asia.

Maintain BUY with slightly higher Target Price of S$0.77:

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2020-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 0.77 UP 0.750