SINGAPORE (Jul 2): CGS-CIMB analysts are maintaining an “add” call on food court operator Koufu Group Ltd with an unchanged target price of $0.86, buoyed by news of its “attractive acquisition” of four F&B companies for $22.04 million on Wednesday.
“We think this is an attractive acquisition as it complements Koufu’s product offering and strengthens its supply chain,” noted analysts Ngoh Yi Sin and Caleb Pang in a Wednesday report.
Trading at an implied 9.2 times price-to-earnings (P/E) ratio, the report comes on the back of subsidiary Koufu Pte Ltd’s acquisition of Deli Asia, Delisnacks, Dough Culture and Dough Heritage from individuals Alex Ong, Irene Lee and Doreen Ong.
The aggregate cash consideration of $22.04 million is arrived at on a willing-buyer willing-seller basis. The consideration will be funded by internal resources, including net proceeds received from the company’s initial public offering in July 2018. Upon completion of the acquisition, Koufu will become the sole shareholder of the four companies.
Collectively referred to as the target group, the brands form one of Singapore’s largest and most established manufacturers and producers of fried food and dough products, supplying frozen and partial fried food products to restaurants, coffee shops and hawker centres.
Besides the supply of fried food products, the target group also licenses its Delisnacks brand to stallholders that retail the target group’s food products from their stalls.
“As a hot food business that caters mainly to the mass consumer take-away market, the target group has proven to be relatively resilient during the Covid-19 circuit breaker,” noted the report.
The deal, expected to be completed by end-July, rests on considerations including a minimum net working capital of $2.5 million and net asset value of $7.1 million on a consolidated basis.
Two of the vendors, Lee and Doreen Ong, will also enter a one-year service agreement with Koufu. The two vendors, who each have over 25 years of F&B experience, will also stay as consultants for another year.
Delisnacks operates some 60 F&B stalls at coffee shops and hawker centres, while Dough Culture runs seven retail kiosks in Singapore. Koufu plans to bring that number to at least 20 over the next five years, revealed executive chairman and chief executive officer Pang Lim yesterday.
Additionally, Koufu enjoys rental costs savings as the target group relocates its production facilities and warehouse into Koufu’s new integrated facility in 2H2020, noted CGS-CIMB.
“Through the supply of frozen and partial fried food products, Koufu could also access new distribution channels, including supermarkets and exports to overseas markets.”
In FY2019, the target group recorded $2.8 million profit before tax (PBT) and net profit of $2.4 million. Assuming the deal is completed by end-July, CGS-CIMB estimates an approximately 5% and 8% upside to the forecasted earnings per share (EPS) in FY2020 and FY2021.
As at 3.26pm, shares in Koufu are trading 1.5 cents higher, or 2.2% up, at 71 cents.
