SINGAPORE (May 9): Food court operator Koufu on Monday announced that its 1Q19 earnings have increased by 12.3% y-o-y to $7.0 million, on the back of a 4.9% y-o-y growth in revenue to $57.8 million.
This was mainly driven by contributions from new outlets and overall growth in existing outlets.
See: Koufu reports 12.3% growth in 1Q earnings to $7 mil on higher revenue
UOB Kay Hian is keeping its “buy” call on Koufu with a target price of 95 cents.
Koufu has noted that the first quarter tends to be seasonally weaker, due to a short month in February and extended closures during the Chinese New Year period. Despite this, same-store-sales (SSS) in growth in Singapore came in at 4-5%, while Macau’s was 8%.
In a Thursday report, lead analyst Yeo Hai Wei says, “With full-year contribution from Rasapura, new outlets ramping up and steady roll-out of R&B Tea outlets, we think net profit could grow at double-digit levels from 2019 onwards.”
During the quarter, the group has opened two new food courts in Singapore – The Woodgrove and Buangkok Square – and has two more new food courts and one new coffee shop in the pipeline for 2019.
In Macau, the group opened a new food court in the University of Macau, which has managed to attract 20-30% of the total student population of about 10,000.
“Koufu had secured favourable lease terms and we are positive on the outlet’s growth prospects,” says Yeo.
Management has also reiterated its commitment to pay out gains from sale of its central kitchens. Koufu owns two central kitchens at 18 and 20 Woodlands Terrace.
“We estimate the eventual sale of these properties could bring in $10 million and unlock gains of up to $8 million, which should bump up dividends,” says Yeo.
On the other hand, DBS Group Research is less bullish as it has downgraded its call on Koufu to “hold” from “buy” previously with an unchanged target price of 80 cents.
In a Tuesday report, lead analyst Alfie Yeo says, “We are now neutral on the stock as valuation has re-rated and is no longer at a discount to peers. However, fundamentals remain sound, with strong cashflow generation capability, defensive earnings, net cash balance sheet, and strong return on average equity (ROAE).”
“However, share price upside is limited at this juncture due to valuation, and we advocate investors to take profit,” he adds.
The group also remains on track to meet DBS’ estimates, supported by Marina Bay Sands Foodcourt’s full 12 months of operation this year.
1Q19 continued to see a net increase in the number of outlets. But startup costs are expected to cause some drag on growth. Going forward, the analyst sees a steady net rollout of new outlets, led by expansion of Supertea and R&B Tea kiosks. The management has targeted at least 20 Supertea and R&B outlets by end of FY19.
“While the strong rollout of outlets will boost revenue and gross margins, we believe a breakeven period of 6-9 months is required before these new outlets turn profitable,” says Alfie Yeo.
As at 12.15pm, shares in Koufu are trading 3.33% lower at 72 cents or 4.1 times FY19 book with a dividend yield of 3.0%.
