Excerpts from Maybank Kim Eng report

Analyst: Eric Ong

Valuation & Risks
Koufu trades at 13x FY19E P/E, which is below the industry average of 20x, based on Bloomberg consensus.

koufu 9.18With its cash flow generative operations, the group aims to distribute at least 50% of its FY18/19 net profit as dividends, which would imply a decent yield of 3.8%.

Underpinned by its resilient business, the stock is a relatively more stable defensive play amid current market volatility.

The recent sale of Kopitiam to NTUC Enterprise for an undisclosed sum should not materially change the competitive landscape, according to management.

Business Analysis

♦ Revenue: Koufu’s business mainly comprises two business segments: Outlet & Mall Management and F&B Retail, which accounted for 48.6% and 51.4% of FY17 revenue, respectively. The group operates its food courts and coffee shops under various revenue models (refer to Pages 6-7 for a detailed explanation).

Cost structure: Property rentals and related expenses formed the biggest component of the group’s total operating costs.

For FY15, FY16 and FY17, property rentals and related expenses accounted for 50.7%, 50.7% and 50.4% of its total operating costs respectively.

This was followed by staff costs covering salaries, bonuses, CPF contributions, staff allowances, foreign workers’ levies, housing benefits and staff training.

Staff costs accounted for 17.9%, 18.1% and 17.2% of its revenue in FY15, FY16 and FY17 respectively.

Seasonality: Due to the stable nature of its business, there are no significant seasonal trends in the financial years under review.

Capex and payback period: Projected capex for one food court is around SGD2m with targeted payback period of three years, implying a ROI of above 30%.

For F&B outlet, the cost outlay is much lower at SGD50-80k and has a payback period of six months to one year. The group typically finances its capex through internal resources.

Dividend policy: While the group has not committed to any fixed dividend policy, it intends to distribute at least 50% of its FY18/19 net profits as dividends.

Competition: While the group aims to set up 50 new F&B concept outlets, such as its “R&B Tea and “Super Tea” stores in Singapore and Macau over the next three years and is targeting an aggressive sales target of SGD30m, it faces keen competition in this segment.

Jumping on this theme, BreadTalk recently opened its first TaiGai flagship store at NEX Serangoon, offering consumers healthier tea options using premium quality tea and fresh fruits.

Full report here.

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