938 Brokers' Digest

As Singapore moves into Phase 2 of the post-circuit breaker recovery at the end of this month, more F&B outlets will start to open, with dine-in allowed subject to certain conditions.

With mall footfall expected to increase as Singapore gradually opens up its economy, analysts are positive on food court operator Koufu Group, which was founded by executive chairman Pang Lim in 2002.

DBS Group Research has upgraded its call on Koufu to “buy” from “hold”, with an increased target price of 75 cents from 68 cents previously.

In a June 15 report, lead analyst Alfie Yeo notes that Koufu will benefit from higher footfall, with dine-in allowed in the upcoming Phase 2. “We upgrade the stock to ‘buy’ in anticipation of better demand and attractive valuations of 15.6/14.0 times FY20/FY21 PE,” Yeo adds.

Koufu operates in the mass market segment and will benefit from higher sales from more transactions as diners return to its food courts and bubble tea outlets located in malls, schools and offices.

Going forward, the analyst forecasts store count growth of two to three outlets per year for food courts and coffeeshops to remain stable at about 15 outlets as Koufu’s focus is currently on opening more food courts.

But an aggressive increase is not expected for Koufu’s F&B kiosks, Quick Service Restaurants (QSR) and full-service restaurants, as some of these formats have to show consistent profitability before scaling up.

“We believe new hospitals such as Woodlands Healthcare Campus and housing estates including Bidadari will carve opportunities for Koufu to penetrate with more outlets,” says Yeo.

In the longer term, Koufu intends to expand in markets around Singapore and Macau, namely China, Malaysia and Indonesia, at an opportune time.

On the other hand, CGS-CIMB Research is initiating its coverage on Koufu with “add” and a target price of 86 cents.

In a Friday report, lead analyst Ngoh Yi Sin says: “Compared to the other F&B players, Koufu’s earnings are more defensive with geographical concentration in Singapore heartlands (about 70% of revenue), and has better net margins and ROEs [returns on equity]. We also like the stock for its strong cash flow generation, net cash balance sheet (zero debt) and robust FY21–22F recovery.”

“With the government pledging to increase the supply of hawker centres and food courts, we think these could be favourable for Koufu, given its established track record in store wins. Ongoing industry consolidation could also present some M&A opportunities for the group, which has a net cash of $86 million,” says Ngoh.

Although Covid-19 has disrupted Koufu’s local and overseas operations, the company is expected to remain profitable in FY20, thanks to an estimated $10 million in budget support (Job Support Scheme and foreign worker levy waiver) and an estimated three months’ rental relief from its landlords, of which the majority will be passed on to its stall tenants.

“Apart from the $2–3 million additional rental income per annum, we think the opening of an integrated facility in 4Q20 would also provide the group with a larger central kitchen and a new R&D centre,” says Ngoh.—Samantha Chiew

ARA Logos Logistics Trust
Price target:
DBS Group Research “BUY” 70 cents

ARA Logos at ‘buy’ amid abating downside risks, steepening yield curves

DBS Group Research has upgraded ARA Logos Logistics Trust (ALLT) to a “buy” from the previous “hold”, with a target price of 70 cents, representing a 32% upside for the stock.

In a June 15 report, DBS analyst Dale Lai believes that ALLT, along with other landlords and tenants, is well-placed to benefit from reopening of the Singapore economy as the state lifts its circuit breaker measures in staggered phases.

“With government grants and cash retained in 1QFY2020, we believe that ALLT has sufficient buffers in place to provide financial assistance to its tenants in the near term,” says Lai, who adds that the brokerage does not foresee the need for further provisions in 2QFY2020.

“With the worst of the Covid-19 pandemic likely to be past us, we see more clarity in earnings for ALLT, especially as the retention of 20% of income in the previous quarter should be sufficient for rental waivers,” he adds.

Despite an amendment to the Temporary Measures Act which now requires landlords to provide one month of rental waiver to SME tenants whose businesses have been significantly impacted by the Covid-19 pandemic, Lai observes that only one-third of ALLT’s tenants in Singapore qualify for the waiver.

This means that the REIT’s retention of 20% of income in 1QFY2020 should be “more than sufficient” to provide for the waiver even if all SME tenants are eligible.

Currently, ALLT has properties in Singapore, Australia and China amounting to $1.6 billion, $2.0 billion and $0.6 billion respectively.

In particular, Lai notes that ALLT has built a significant footprint in Australia over the past few years with 17 properties that are now worth some $404.6 million.

“With an enlarged presence in Australia, ALLT benefits from having a larger proportion of its portfolio on a freehold tenure and lengthens the trust’s weighted average lease expiry (WALE), which improves earnings visibility,” says Lai.

Looking ahead, Lai says more acquisitions are in the pipeline, especially since ARA and Logos provides ALLT with a sponsor that is vertically integrated in the logistics space and could provide it with access to $9.4 billion worth of assets in the region. — Uma Devi

Perennial Real Estate Holdings
Price target:
CGS-CIMB: Accept

Accept privatisation offer, CGS-CIMB tells minority shareholders

Minority shareholders of Perennial Real Estate Holdings should accept the privatisation offer made by the company’s substantial shareholders together with Chinese asset manager HOPU Fund Management Company, according to CGS-CIMB.

The consortium, which already holds 82.43% of the integrated real estate and healthcare company, is offering 95 cents per share and will not revise the offer.

The shareholders in concert include chairman Kuok Khoon Hong, vice chairman Ron Sim and CEO Pua Seck Guan, the company said on June 12.

“While we see long-term value in its portfolio of development and completed properties, we think investors should accept the offer as the offer price is close to our revalued net asset value-based target price of 99 cents and the gestation period required to complete its development projects,” CGS-CIMB analyst Lock Mun Yee writes in a June 15 note.

CGS-CIMB notes that Perennial could face a more challenging operating environment for its retail and hotel properties due to the Covid-19 pandemic. — Jeffrey Tan