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SI Research: Should You Put Koufu Group On Your Plate?

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If you are a foodie, you must know that the best reason to visit Singapore is for the glorious selection of food here. One of the excellent ways to sample Singapore’s food is at hawker centres or food courts. Food courts in Singapore serve up a wealth of cuisines, with each store specializing in certain dishes. Be it local delights to international cuisines like Western, Thai, Japanese and Korean, you can find all your favourite dishes in one common dining space at an affordable price.

For every food court, the stand-alone vendors are managed and rented out by a food court operator. Amongst them, Koufu Group (Koufu) stands out as one of the largest operators in Singapore. Founded by Mr Pang Lim and Madam Ng Hoon Tien in 2002, Koufu’s humble beginnings commenced with just two food courts and one coffee shop.

In less than two decades, Koufu has expanded to one of the leading food court operators in Singapore with 48 food courts catering to different market segments, such as premium Rasapura Masters and halal-focused Fork & Spoon. Koufu also runs 14 coffee shops in Singapore to cater to more budget-friendly diners as well as a food court in Macau.

After running its business privately for 16 years, Koufu made its debut on the mainboard of the Singapore Exchange (SGX). Three months since its initial public offering (IPO), we thought it would be appropriate to assess how this food court operator has fared over the period. At the time of writing, Koufu shares are down 12.9 percent from its closing high of $0.70 and changing hands at $0.61. Dipping below its offer price for the first time, would it be a good time to accumulate Koufu?

Maiden Results Since IPO

It is tough being a food and beverage (F&B) vendor in Singapore these days due to high overheads such as labour, rental and raw materials. In this cut-throat environment, turnaround of vendors can happen quickly, leading to less rental revenue for the food court operator.

Despite the challenging F&B environment, Koufu’s top line grew at a compounded annual growth rate (CAGR) of 4.4 percent to $216.7 million in FY17. In 1H18, revenue continue to grow 2.1 percent to $109.2 million, boosted by a 3.5 percent and 0.9 percent growth in revenue for Outlet and Mall Management and F&B Retail segments, respectively, to $53.8 million and $55.4 million. Apart from an increase in number of outlets, management was able to eke out growth in the top line suggesting that they have a strong understanding of consumers’ tastes and were able to capture that with their tenant mix.

Despite the partial closure of the Marina Bay Sands food court between April and July 2018 for refurbishment and upgrading works, earnings before interest, taxes, depreciation and amortisation (EBITDA) in 1H18 still rose 7.8 percent to $20.7 million with EBITDA margin improving from 18 percent to 19 percent.

Nonetheless, net profit declined marginally by 1.4 percent to $12.4 million mainly due to the decrease in interest income from the Convertible Loan Notes that were disposed in FY17 as part of the restructuring exercise prior to IPO.

Unburdened Balance Sheet

We like Koufu’s comfortable and unburdened balance sheet in particular. As at 30 June 2018, Koufu held $42.5 million of cash and bank balances and only has $3 million of borrowings. With $39.5 million of net cash on hand, Koufu’s strong cash position endows it with the ability to seek out potential growth opportunities as and when they arise. Furthermore, Koufu’s debt-to-equity ratio also stood insignificantly at 0.07 times.

While Koufu has not committed to any fixed dividend policy but management intends to distribute at least 50 percent of its net profit as dividends in FY18 and FY19. This translates into a decent prospective yield of four percent, backed by its strong net cash balance of $39.5 million. Meanwhile, we believe that the dividend payout is sustainable with its rich cash flow generation ability owing to its resilient business nature, even in challenging economic cycles.

New Integrated Facility

Going forward, Koufu will establish an integrated facility in Woodlands in 4Q18 and expected to be completed in 2H20. The integrated facility will have a gross floor area (GFA) of 20,000 sqm, which is five times larger than its existing central kitchen and corporate headquarters. The new facility will house a larger central kitchen to reduce the food preparation processes previously done on-site. The facility would also act as a centralised dishwashing facility to automatically service its tenants located in the Northern and Western regions.

The new facility should engender greater cost savings through the central procurements and preparations of food. This reduces its manpower requirements and also improves space utilisation in its F&B outlets. With the added capacity, Koufu will lease out approximately 30 percent of the GFA of the new facility to third party stall operators for their production needs and provide the infrastructure support to improve their operational efficiency. Management expects the potential rental income generated from third-party operator to offset the depreciation cost of the new facility.

Meanwhile Koufu will increase investments in technology to enhance productivity, this will further support its long-term growth and expands its profit margins.


Name Market Cap


P/E Ratio Div Yield (%) P/B Ratio
Breadtalk 535.1 41.5 2.1% 3.0
Kimly 358.1 17.0 3.1% 4.6
Koufu Group 344.2 11.6 7.1
Jumbo Group 272.8 25.2 2.4% 4.3
ABR Hldgs 160.8 32.4 3.1% 1.7
Japan Foods Hldg 85.1 14.4 4.3% 2.4
No Signboard Hldgs 72.6 15.1 1.7% 2.8
RE&S Hldgs 67.3 18.9 2.1% 1.9
Tung Lok 51.6 3.3
Katrina Group 48.6 70.4 1.2% 3.6
Soup Restaurant Group 40.6 17.5 3.5% 4.1
Sakae Hldgs 25.1 7.5 0.6
Pavillon Hldgs 5.0 0.1
Chaswood Resources Hldgs 2.3 -0.1
Average   24.7 2.6% 2.8

Source: Singapore Exchange, as of 16 October 2018

Based on its current market price, Koufu is trading at price-to-earnings (P/E) ratio of 11.6 times. Koufu is considered to be relatively undervalued when compared to its average regional peers of 24.7 times. The contrast in valuation is even more stark, considering that its prospective yield of four percent is significantly higher its other peers.

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