Analysts still have a strong appetite for food court operator Koufu despite its latest lacklustre 1H20 results and expect it to bounce back up from its less-than-stellar performance.
Koufu saw 1H20 earnings dip by 82% y-o-y to $2.5 million, while revenue fell by 23% y-o-y to $89.0 million.
The group also declared an interim dividend of 0.5 cents, half of what was declared in 1H19.
See: Koufu posts 82% decline in 1H earnings to $2.5 mil; interim dividend cut by half
The Covid-19 outbreak in Singapore led to the government enforcing strict social distancing measures, especially during the circuit breaker period which disallowed dining in. This was the main reason for Koufu’s downfall in 1H20.
However, Singapore is two months into Phase 2 of reopening the economy and once again consumers are allowed to socialise and dine in restaurants again, albeit at a lower capacity of five pax per table with social distancing measures still in place.
Since Koufu reopened all of its outlets, it noted that pent up demand from consumers to dine in restaurants have caused it to experience a significant improvement in footfall and revenue at most of its food courts, R&B drinks stalls and restaurants.
However, since overseas travelling is still restricted and many companies are still encouraging staff to work from home, Koufu’s outlets at tourist locations, near offices and education institutions have not seen a similar recovery trajectory.
DBS Group Research analysts Alfie Yeo and Andy Sim say, “Growth is supported by gradual re-opening of its food outlets on easing circuit breaker measures, supported by the acquisition of Deli Asia which will contribute substantially to net profit in FY21.”
To recap, Koufu in July acquired traditional fried food and dough products group, Deli Asia, for about $22 million.
See: Koufu acquires group of food manufacturing companies for $22 mil
Although Koufu remains the analysts’ Singapore F&B Foodservice pick as it operates in the mid to low end mass dining segment which will benefit from a recovery of footfall, earnings estimates for FY20-21 have been lowered to reflect the disappointing 1H20 results.
Despite the earnings cut, Yeo and Sim have kept their “buy” call on Koufu with a higher target price of 77 cents from 75 cents previously.
Sharing similar sentiments, UOB Kay Hian is also reiterating its “buy” recommendation on Koufu with a target price of 78 cents.
In an Aug 13 report, lead analyst Joohjit Kaur says, “Going into 2H20, we do expect a significant q-o-q improvement in earnings, led by gradual sales recovery, especially in heartland areas and additional government grants.”
Koufu’s management has shared that the footfall and revenue in heartland areas (50-60% of revenue) have seen significant improvements post resumption of dine-in services.
For the rest of the year, Koufu will be opening new outlets in Singapore – food court in Le Quest mixed development, a quick-service restaurant (QSR) at Canberra Plaza and three new R&B Tea kiosks – as well as Macau – Nova City outlet. The group is also looking to expand the network of retail kiosks under the newly acquired Dough Culture brand.
However, travel restrictions, work-from-home and social distancing measures are still in place. Hence, Kaur expects 2H20 earnings to decline by 7.6% y-o-y.
Similarly, CGS-CIMB Research is upbeat on the fact that more people are dining-out, but notes that the tourist, office and school areas still lack recovery.
In an Aug 12 report, analyst Ngoh Yi Sin says, “We estimate negative same-store-sales growth (SSSG) of 15-20% in 2H, an improvement compared to 2Q20’s -30-40%.”
Meanwhile, apart from the new outlets opening for the rest of the year, Koufu will also be obtaining TOP for its new integrated facility in 4Q20.
Overall, topline growth for FY21-22 is expected to be driven by the group’s latest acquisition of Dough Culture, which will allow it to reap cost synergies, as well as more F&B stall openings.
With businesses realising the importance of digitalisation and Covid-19 changing consumer behaviour, Koufu has hopped on the digital bandwagon and is looking to roll out its own delivery app to more areas as increased frequency of takeaways and deliveries has become the new norm given the pandemic and capacity restrictions.
“We continue to like Koufu as a resilient F&B play with strong cash generation and balance sheet,” says Ngoh, who continues to rate Koufu “add” with an unchanged target price of 86 cents.
PhillipCapital in an August 14 report has maintained its “buy” recommendation but with a lowered target price of 77 cents from 80 cents previously, with FY21 earnings estimates also tweaked down by 3.2% as the TOP of the group’s integrated facility has been delayed to 4Q20 from 3Q20.
Nonetheless, the group is well poised for a recovery, as footfalls and revenue of the food courts in the heartland areas have seen significant improvement to about 90% pre-Covid-19 levels since Phase 2.
“We continue to remain positive on the Group’s outlook post circuit breaker. We believe the recovery in consumption post circuit breaker will continue to improve footfalls and revenue of the food courts and coffee shops in 2H20. We expect the completion of the Group’s new IF in 4Q20 to see cost savings and an additional revenue source for them,” says analyst Terence Chua.
As at 1.05pm, shares in Koufu are trading at 68 cents or 3.4 times FY20 book with a dividend yield of 1.5%, according to DBS’ estimates.
