Koufu Group - DBS Research 2021-02-24: Beneficiary Of Improving Consumption; COVID-19 Recovery Play


Koufu Group - Beneficiary Of Improving Consumption; COVID-19 Recovery Play

  • Koufu's core 2H20 earnings in line, consumption recovery led to sequential earnings improvement.
  • Final dividend of S$0.007 per share declared, above expectations.
  • On track for post COVID-19 recovery.

Koufu's 2H20 core earnings in line.

  • Koufu (SGX:VL6)'s 2H20 headline earnings of S$7m (-46% y-o-y) was below our forecast. However, excluding one-off items, core earnings of S$10.9m was in line.
  • Revenue of S$103m (-15% y-o-y) was within expectations, with sequential growth driven by the F&B Retail business segment, offset by Outlet and Mall Management business, which posted a sequential decline due to lower footfall and rental rebates to tenants.
  • Annual operating cashflows generated in FY20 remained strong, second highest historically at S$73m, behind pre-COVID-19 level of S$110m in FY19.
  • A final dividend of S$0.007 per share was declared, above expectations, which brings Koufu's FY20 full year dividend to S$0.023 per share or 67% payout.

Sequential revenue improvement.

  • Revenue grew 16.2% versus 1H20 to S$103m (-15% y-o-y). This was largely led by the F&B Retail Business segment, which saw maiden contribution of S$5.6m from newly acquired Deli Asia. Excluding Deli Asia’s contribution, segment revenue would have grown by 29% h-o-h. This was driven by the recovery in Singapore retail sales for F&B post reopening of the economy from the Circuit Breaker.
  • Outlet and Mall Management business was down by 7% h-o-h to S$44.6m, dragged by rental rebates to tenants.

Operating margins en route to recovery.

  • Koufu's core operating margins excluding government grants (Jobs Support Scheme) recovered to 7.9% in 2H20, as higher revenues helped to defray fixed operating costs. Government grants stayed at S$6m for 2H20.
  • Excluding one-offs such as impairment and write offs of trade receivables and other income, core earnings would have more than doubled to S$11m sequentially. Excluding government grants as well, Koufu's net profit would have grown from S$1.1m to S$4.8m from 1H20 to 2H20.

Earnings to normalise, network expansion to drive growth.

  • Due to restrictions in place as a result of the COVID-19 pandemic, 2H20 headline earnings fell by 45.9% y-o-y. Although performance is still some way off pre-COVID-19 levels, we expect earnings to improve as domestic consumption gradually picks up.
  • Store network continues to expand with 3 new R&B Tea kiosks (Change Alley Mall, Le Quest Fusionpolis and Sun Plaza), 1 new food court (Le Quest), and 1 Grove quick-service restaurant (Canberra Plaza). 3 new foodcourts (Sun Plaza, Koufu’s new Headquarter at Woodlands Height and NTU) are scheduled to open in 2Q21.
  • Full year core profit decline was -47% y-o-y. We anticipate recovery to pre-COVID-19 levels by end of this year.

Maintain BUY and S$0.77 target price.

COVID-19 recovery play.

  • We see Koufu’s earnings benefiting from higher footfall as domestic consumption continues its rebound in Phase 3 and beyond.
  • Upside to our target price could come from earnings growth via new outlets, stronger demand, economies of scale at its new integrated facility and longer-term growth from overseas markets.

Alfie YEO DBS Group Research | https://www.dbsvickers.com/ 2021-02-24
SGX Stock Analyst Report BUY MAINTAIN BUY 0.770 SAME 0.770