Koufu Group - UOB Kay Hian 2021-02-25: 2020 Earnings Missed Due To Impairments But Recovery Trend Intact; Maintain BUY


Koufu Group - 2020 Earnings Missed Due To Impairments But Recovery Trend Intact; Maintain BUY

  • Koufu’s 2020 net profit declined by 64% y-o-y to S$9.9m, 9% below our expectations, mainly due to higher impairment losses of S$5.5m. Revenue fell by 15% y-o-y due to the circuit breaker measures and lower contribution from Macau due to travel restrictions.
  • We expect Koufu's earnings to continue to improve sequentially as seen in the 2H20 earnings growth of 192% h-o-h, led by gradual sales recovery especially in heartland areas.
  • Maintain BUY and a 5% higher target price of S$0.77.


Results below expectations but sequential improvement trend intact.

  • Koufu (SGX:VL6) reported 2020 net profit of S$9.9m (-64% y-o-y). The results were below our expectations, forming 91% of our full-year forecast, mainly due to a higher-than-expected impairment loss of PPE and trade receivables amounting to S$5.5m.
  • We continue to see sequential h-o-h improvement in earnings (S$7.3m in 2H20 vs S$2.5m in 1H20) and revenue (S$103m in 2H20 vs S$89m in 1H20). We expect this trend to continue, led by the gradual reopening of economies and sales recovery in the heartland areas.

2020 revenue declined 19% y-o-y due to circuit breaker measures in Singapore and travel restrictions in Macau.

  • Koufu's revenue from the outlet and mall management segment declined 23% y-o-y in 2020 largely due to a decrease in variable rent income (S$10m) caused by lower footfall, and fixed income (S$11m) as rental rebates were passed down.
  • Revenue from food and beverage declined 15% y-o-y in 2020 due to lower footfall at most outlets during the circuit breaker and Phase 1 of the COVID-19 outbreak as dine-in services were disallowed and there was temporary suspension of operations of 10 food courts, three quick-service restaurants (QSR), two full-service restaurants and 26 R&B tea kiosks/QSR during the circuit breaker and Phase 1 periods.
  • On a geographical basis, operations in Macau, which are reliant on tourist arrivals, continue to be negatively impacted.

Revenue decline exacerbated by fixed costs but partially mitigated by grants.

  • Koufu's staff costs and rental expense was 10% y-o-y and 25% y-o-y lower in 2020. The group also received S$12m worth of grants in 1H20. However, these were insufficient to offset the S$45m fall in revenue and S$5.5m higher impairment of PPE and receivables.


Gradual recovery in Singapore, particularly in heartland areas.

  • Since the Phase 2 reopening of the economy, management shared that the footfall and revenue in heartland areas (50-60% of revenue) have seen significant improvements after the resumption of dine in services. However, food courts located near offices, downtown areas, tertiary institutions as well as tourist hot spots continue to remain low as certain companies continue to implement work from home measures and travel restrictions remain in place.

Macau update.

  • Both Mainland China and Macau have slowly opened up their borders including resuming the regular operational hours of the Hong Kong-Zhuhai-Macau bridge and Portos do Cerco border in early-May 20 and also the recent lifting of the 14-day quarantine policy on all visitors crossing the Macau-Guangdong borders in Jul 20. Currently, only a resident of Macau, Mainland China, Hong Kong or Taiwan is permitted entry to Macau with a valid negative COVID-19 test result, provided he/she has not been to other countries in the previous 21 days. However, business operations remain at a reduced level given the reduced number of visitors and travellers generally.
  • In 3Q20, Koufu opened its third food court in Nova City. The current occupancy rate for the food stalls in Macau remains at 100%

Strong cash position.

  • Koufu’s cash-generating ability has helped it build a significant net cash of S$63m as at end-20, equivalent to 17% of its market capitalisation.


Downgrading earnings for 2021.

  • We lower our Koufu's 2021 earnings forecast by 40% to reflect the slower-than-expected recovery especially for the operations in Macau and the central business district area in Singapore due to the slower reopening of economies.
  • We have kept our 2022 earnings estimates largely unchanged and we introduce our 2023 financial estimates.



  • Sale of two central kitchens and special dividend.
  • Easing of travel restrictions and stronger-than-expected recovery from COVID-19 impact.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.77 UP 0.730