SINGAPORE (June 15): As Singapore is about to move into Phase 2 of the circuit breaker recovery at the end of this month, more food and beverage outlets will start to open and dining in may even be allowed again.
With the expected increase in mall footfalls as Singapore gradually opens up its economy, analysts are positive on food court operator Koufu.
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 Monday report, lead analyst Alfie Yeo says, “We believe Koufu will benefit from higher footfall with dine-in allowed in the upcoming Phase 2 of easing of the Circuit Breaker (CB).”
“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 foodcourts and bubble tea outlets located in malls, schools and offices.
Meanwhile, the analyst forecasts store count growth of two to three outlets per year for foodcourts going forward and coffee shops to remain stable at about 15 outlets as Koufu’s focus is currently on opening more foodcourts. But an aggressive increase is not expected for Koufu’s F&B kiosks, Quick Service Restaurants (QSR) and full-service restaurant, 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, “As 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. We also like the stock for its strong cashflow generation, net cash balance sheet (zero debt) and robust FY21-22F recovery.”
Hawker far in Singapore is expected to remain an integral part of Singapore culture, given that 80% of the population resides in public housing and more people are choosing to eat out and more healthily.
“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 had 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 3 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.
As at 11.20am, shares in Koufu are trading at 68 cents or 3.2 times FY20 book with a dividend yield of 3.2%, according to DBS’ estimates.