Koufu Group - UOB Kay Hian 2021-08-12: 1H21 Earnings Beat Expectations, Better Outlook As Recovery Continues

KOUFU GROUP LIMITED (SGX:VL6)

Koufu Group - 1H21 Earnings Beat Expectations, Better Outlook As Recovery Continues

Koufu's 1H21 earnings of S$9.9m (+291% y-o-y/+35% h-o-h) was above expectations, meeting 67% of our full-year estimate. Revenue increased 19% y-o-y due to an increase in footfall and the newly-acquired snack business.
We expect Singapore’s business to improve as restrictions have eased, and a higher percentage of the population has been vaccinated. Macau should also see more Mainland Chinese visitors.

We raise our 2021 earnings forecast for Koufu by 15%. Maintain BUY with a target price of S$0.77.

Koufu (SGX:VL6) reported 1H21 earnings of S$9.9m (+291% y-o-y/+35% h-o-h). The results were above expectations, forming 67% of our full-year forecast, mainly due to higher-than-expected other income, which include:
1. government grants of S$4.4m;
2. renovation income of S$1.6m; and
3. gains from the disposal of assets of S$0.7m.
We continue to see sequential improvement of Koufu's earnings h-o-h (S$9.9m in 1H21 vs S$7.4m in 2H20) and revenue h-o-h (S$106m in 1H21 vs S$103m in 2H20). We expect this trend to continue, led by the gradual reopening of economies.

Revenue from the outlet and mall management segment increased 3% y-o-y in 1H21 due to increase in rental and related income from stall tenants as a result of higher footfall and food sales generated.
Revenue from food and beverage increased 37% y-o-y in 1H21 due to an improvement in footfall as compared with the previous year where revenue was impacted by circuit breaker and Phase 1 periods and contributions from the newly acquired snacks and dough products business.

In the outlook statement, Koufu expects business in Singapore to improve as restrictions have eased and a higher percentage of the population is getting vaccinated.
On the other hand, business in Macau is expected to improve as more Mainland Chinese visitors visit Macau under the quarantine-free travel arrangements, notwithstanding any further flare-ups of COVID-19 in China or Macau.
In addition, Koufu’s strong balance sheet with net cash of S$69m as at 1H21 (equivalent to about 20% of its market cap) could help it seize new opportunities.

The government announced that in the upcoming months, as Singapore moves towards a large percentage of the population being fully vaccinated, safe management measures will be gradually relaxed. Koufu expects its business operations to improve significantly once the restrictions have eased.
From 10 Aug 21, Phase 2 (Heightened Alert) measures will be lifted in a calibrated manner as part of Singapore’s transition towards COVID-19 resilience, including more relaxed measures on dining-in

On 16 Mar 21, Macau eased its border restrictions by reopening its borders to foreigners via Mainland China provided they hold a mainland China visa issued by the Office of the Commissioner of the Ministry of Foreign Affairs of the People’s Republic of China in the Macao Special Administrative Region. Koufu saw improvements to the footfalls to the Londoner Macao especially during the Labour Day holiday in May 21 where Macau’s daily visitor arrivals jumped to nearly 28,000, more than tripling from the third quarter of 2020. However, the number of visitors was 39% lower in Jun 21 as compared with the previous month due to the reintroduction of pandemic prevention restrictions in the Guangdong province resulting from a surge in the number of COVID-19 cases there.
In Jul 21, Koufu again saw a surge in the footfall to the food court at Londoner Macao due to the increase in the number of Chinese visitors to Macau. Koufu expects its business operations to improve significantly in time as more Mainland Chinese visitors flock to Macau under the quarantine-free travel arrangements, which at the moment is only granted to most low risks areas of China.

Koufu’s cash generation ability has helped it build a significant net cash of S$69m as at 1H21, equivalent to about 20% of its market capitalisation.

We raise our 2021 earnings forecast for Koufu by 15% to account for higher-than-expected other income (raised from S$5.5m to S$8.1m), which arises mainly from government grants and renovation income. The Singapore government has increased its grants for 2021 to cushion the impact of Phase 2 (Heightened Alert) measures.
We kept our 2022 and 2023 earnings estimates unchanged.

Maintain BUY on Koufu with a PE-based target price of S$0.77, pegged at 17x 2022F P/E or approximately 25% discount to peers’ average. Koufu has the highest ROE and is the most profitable among local peers.
See

Completion of the sale of two central kitchens and special dividend.
Easing of travel restrictions and stronger-than-expected recovery from the impacts of VID-19.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-12

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