Koufu Group - SAC Capital 2021-08-17: Seeing Light Ahead


Koufu Group - Seeing Light Ahead

  • Koufu (SGX:VL6)'s 1HFY21 revenue was 47.0% of our FY21E forecasts, and 46% of Bloomberg consensus forecasts, slightly lower due to the P2HA measures in place from 16 May to 13 June, and low footfall that remained at tertiary institutions and tourist-dependent outlets in 1H. On the bright side, outlets in the heartlands continue to see higher footfall and higher delivery sales.
  • Koufu's 1HFY21 revenue rose 1.8% y-o-y from S$89.0m to S$105.7m, with the F&B retail business segment increasing by 37.4% y-o-y, from S$41.2m to S$56.6m and the outlet and mall management segment increasing by 2.7% y-o-y from S$47.8m to S$49.1m. With an improvement in footfall at food outlets, Koufu managed to increase rental income. PATMI surged 3.9x.
  • In March, Macau reopened its borders to tourists entering from Mainland China. Londoner Macao food court saw a significant improvement in footfall, which is expected to continue as long as its quarantine-free travel remains open to Chinese visitors. However, as most of Macau’s share of revenue comes from Chinese tourists, we are cautious of the spread of the Delta variant currently ongoing in China.
  • In 1H, with the restrictions in place in Singapore and Malaysia (source of some materials), the integrated facility is expected to commence operations in Q3/Q4 2021 (from the previously scheduled Q2). It has achieved full tenancy for the remaining 25% of facility’s GFA (Koufu will be occupying the remaining 75%).

Hoping for higher footfall as Singapore moves towards endemic state

  • Singapore has moved out of P2HA partially from 10 Aug and will continue to be further from 19 Aug, which will see more relaxed limits on dining-in.
  • In 1H, Koufu temporarily suspended several business outlets in low footfall areas such as tertiary institutions. With higher vaccination rates in Singapore, the plans to move towards an “endemic” state are becoming more concrete. Food courts and F&B outlets in tertiary institutions will continue to pick up pace as more returns to school for face-to-face lessons.
  • In addition, with the pandemic fatigue kicking in, social gatherings, retail activity and entertainment activities have been picking up, which we expect would continue further as increasingly more becomes fully vaccinated.
  • Currently, as Koufu’s heartlands outlets pick up pace, tourist-dependent outlets are still facing drags. With Singapore’s travel corridor plans and aims to reopen its borders gradually to some countries, we see this boding well for outlets catered towards tourists.

New outlets secured, likely at lower rental rates

  • In 1H, Koufu has opened 1 new food court and 1 self-operated stall at Sun Plaza, and 5 other F&B retail kiosks/stalls including 2 R&B Tea, 3 Dough Culture kiosks. In July/August, they additionally opened 2 new food courts at Marina Square, Nanyang Technological University and 1 new food court shop at the new Koufu Headquarters in Q3 2021. A few other F&B outlets are underway with leases secured. We expect these leases were locked in at lower rental rates, lowering expenses until they get renewed.
  • According to Management, expansion within Singapore will have a focus on new housing estates, hospitals, commercial malls and tertiary educational institutions. For overseas expansion, their focus will be to continue to build their network in Macau.
  • As at 30 Jun 2021, Koufu has net cash of S$68.8m (up from S$65.7m in 31 Dec). This makes up 64.9% of net assets.

Maintain BUY rating at marginally higher fair value of S$0.775 (from S$0.770)

  • We maintained our FY21/FY22 topline estimates for Koufu, with adjustments to bottomline (-7.6% and -7.9%) due to higher rental expenses and staff costs with the new businesses, and higher staff incentives in 1H; slightly offset by the lower depreciation expense due to the lower carrying amount of ROU assets.
  • See
  • We expect further h-o-h improvements for Koufu in 2H, with
    1. new outlet contributions, and
    2. as Singapore moves towards an endemic state with more relaxation of limits and measures.
  • With the high depreciation charge with respect to EBIT, and higher cash position, our DCF-derived target price for Koufu is marginally higher, and translates into a FY21E/FY22E P/E of 19.5x and 15.8x. Our target price implies a 15.7% upside to the last traded Koufu's share price.

Lim Li Jun Tracy SAC Capital Research | Lam Wang Kwan SAC Capital | https://www.saccapital.com.sg/ 2021-08-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.775 UP 0.770