Koufu Group - CGS-CIMB Research 2021-06-03: Awaiting The Feast


Koufu Group - Awaiting The Feast

  • We expect Koufu’s revenue to return to pre-COVID after FY22F with gradual border reopening and structural shift towards hybrid home/office work model.
  • The commencement of integrated facility is also delayed to 3Q21F (from 2Q21F) due to the recent tightened measures. Margin expansion postponed.
  • The worst could be over, but recovery takes time. Downgrade Koufu to HOLD and target price lowered to S$0.71, now based on 17x FY22F P/E at ~20% discount to peers.

Structural near-term headwinds faced

  • Footfall at Koufu (SGX:VL6)’s outlets in Singapore has been negatively impacted by the implementation of Phase 2 (heightened alert) on 16 May 2021, whereby dining-in is prohibited at all F&B outlets across the island.
  • As announced by Prime Minister Lee on 31 May 2021, measures are likely to ease going forward, but it is highly unlikely for distancing measures to return to what they were in 1Q21 (up to 8 pax allowed for gatherings) so soon, in our view. We expect 1H21F revenue to rise 5% y-o-y (-19% vs 1H19) with weaker 2Q21F, as a significant proportion of Koufu’s current outlets are located in malls (~43%), with a smaller proportion located in schools (~9%) and offices (~4%).
  • As Singapore shifts towards a hybrid work-from-home model, we expect footfall recovery at these locations to remain an overhang for FY21F/22F earnings.

Trim EPS estimates by 4-12% for FY21-23F

  • In addition to slower-than-expected footfall recovery, border reopening also remains a near-term uncertainty. Tourist arrivals in Singapore and Macau, while gradually improving, still remain weak at 2% and 23% of pre-COVID levels respectively.
  • Commencement of the new Integrated Facility has also been delayed to 3Q21F (vs. 2Q21F as previously guided) due to disruptions arising from the pandemic, postponing potential GPM expansion. That said, we think that the impact should be slightly offset by growing contribution from Deli Asia as well as enhanced grants offered from the Job Support Scheme (JSS). As such, we cut our FY21F-23F EPS estimates for Koufu by 4-12%.

Downgrade to HOLD while awaiting recovery; target price lowered to S$0.71

  • We still like Koufu for its strong balance sheet (end-FY20 net cash position of ~S$62m), giving it sufficient dry powder for working capital requirements as well as potential M&A opportunities as the economy recovers.
  • The worst is possibly over, but recovery is expected to be gradual, in our view. Hence, we downgrade Koufu from Add to HOLD. We lower our target price for Koufu to S$0.71, pegged to ~17x FY22F P/E based on a ~20% discount to peers in view of the group’s smaller market cap (vs 19x FY22F P/E previously).
  • See
  • Upside risks include faster improvement in F&B footfall and increased tourist arrival numbers.
  • Downside risks include a resurgence in COVID-19 infections.

Cezzane SEE CGS-CIMB Research | Kenneth TAN CGS-CIMB Research | https://www.cgs-cimb.com 2021-06-03
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.71 DOWN 0.940