Koufu Group - Phillip Securities 2021-03-15: Proposed Disposal Of Central Kitchens Ahead Of Schedule

KOUFU GROUP LIMITED (SGX:VL6) | SGinvestors.io KOUFU GROUP LIMITED (SGX:VL6)

Koufu Group - Proposed Disposal Of Central Kitchens Ahead Of Schedule

  • Proposed disposal of 18 and 20 Woodlands Terrace subject to and conditional upon the written in-principle approval from the Jurong Town Corporation.
  • We estimate Koufu will realise S$10.0mn gain from proceeds of S$11.8mn, if approved.
  • We maintain our ACCUMULATE rating on Koufu with an unchanged target price of S$0.68 as we benchmark our valuation to 18.5x FY21e, the average of their SGX listed peers.



Positives


Sale of two existing central kitchens ahead of schedule.

  • Koufu (SGX:VL6) has granted an independent third party purchaser an option to purchase its two existing central kitchens located at 18 and 20 Woodlands Terrace for an aggregate consideration of S$11.8mn, which works out to S$312 per sqft for their two central kitchens. The purchaser has exercised the option on March 11, and the consideration will be paid fully in cash. The proposed disposal is subject to and conditional upon the written in-principle approval from the Jurong Town Corporation.
  • The sale of the two existing central kitchens came ahead of Koufu’s intention to sell the properties within two years of obtaining its temporary occupation permit (TOP), where the proposed integrated facility is being constructed. The TOP is expected to be obtained in the first quarter of 2021, and operations are expected to commence by the second quarter of 2021. Koufu will be occupying 75% of the total gross floor area while the balance of 25% has been full tenanted out.

Gains from disposal to be distributed as special dividends.

  • Koufu will realise gains of over S$10.0mn from the sale over the carrying value of their two central kitchens as these properties have been held for over 10 years on their books.
  • We believe Koufu will distribute gains from the disposal amounting to S$0.018 per share as special dividends to shareholders but they may opt to retain some of the proceeds in the near-term for working capital requirements given the current climate. As such, we believe Koufu may distribute the gains from the disposal over a two-year period rather than as a one-off special dividend.


Outlook

  • We remain positive on Koufu’s outlook post circuit breaker. We believe the recovery in consumption post circuit breaker will continue to improve footfalls and revenue of the food courts and coffee shops in 2021. We expect the completion of Koufu’s new integrated facility in 1Q21 to yield cost savings and provide an additional revenue source from the rental of the balance 25% space.
  • Koufu has proposed a final dividend of S$0.007 per share for 2H20, bringing FY20’s payout ratio to 67% of earnings.
  • Koufu is currently awaiting written in-principle approval from the Jurong Town Corporation for the sale of their two existing central kitchens. We expect Koufu to distribute the gains from the sale as special dividends to shareholders.

Maintain ACCUMULATE with unchanged target price of S$0.68






Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-15
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.680 SAME 0.680



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