Reasons why i think Koufu can demonstrate strong growth
Koufu Group Limited (SGX.VL6) is one of the largest operators and managers of food courts and coffee shops in Singapore and Macau.
Koufu was listed on SGX in July 2018, and it has reported a good set of earnings in Q3 2019 net profit grew 19% y-o-y - S$7.2m. Earnings was boosted by new outlets, growth in existing outlets as well as margin expansion.
The group has many brands (shown below) that cater to different segments of customers.
The strong earnings were driven mainly by higher revenue contribution from the outlet & mall management (+6.6% y-o-y - 3Q19) and (+6.2% y-o-y - 9M19).
F&B retail segments (+7.3% y-oy) on the back of new outlets. In addition, core net margin expanded to 11.5%, in line with the improvement in food court performance which flows straight into bottom line due to the high operating leverage of the business.
Defensive cash cow backed by strong brands and leading market position.
Koufu runs highly defensive food court and coffee shop businesses, and is focused on providing competitively priced meals transacted in cash terms. Its outlet and mall management business has seen consistently high occupancy of at least 93% in the last three years. Koufu intends to distribute at least 50% of its profits for 2019, which is sustainable given strong cash-flow generation. This could translate into a potential dividend yield of 3.6% for 2019.
Koufu’s expansion plans
Koufu has a strategic plan to expand in Singapore through the opening of new food courts and coffee shops in new housing estates, hospitals, commercial malls, and educational institutions.
In Macau, Koufu opened its second food court in April this year at Macau University and is negotiating the lease for a third food court targeted to open in the second half of 2019.
Koufu opened five new R& Tea outlets in Singapore in 3Q19. Plans are underway for further expansion as 10 new locations have been secured and are slated to open progressively from 4Q19 to 2020. The group has set a new target of at least 29 R&B Tea and SuperTea outlets by the end of 2019.
Pang Lim, Koufu's chief executive officer, said in July 2019:
"The Supertea and R&B Tea brands have a strong following in Singapore, and we expect to grow to 30 outlets by the end of the year. We believe we are well-positioned to capitalise on the vast market potential in Indonesia, using it as a springboard for further expansion into the region."
The brands will start with a focus on Jakarta’s Grade A malls, before progressively expanding their footprint across the rest of the country. Koufu may also eventually take its food retail brands into Indonesia, it added.
The brands will start with a focus on Jakarta’s Grade A malls, before progressively expanding their footprint across the rest of the country. Koufu may also eventually take its food retail brands into Indonesia, it added.
Net Profit After Tax increased from 4.6m in 3Q18 to 7.1m 3Q19 which translates into a whopping 52.3% which shows Koufu is capable of strong growth yet being a defensive stock.
Profit & Loss
Robust Balance Sheet and Healthy Cash Flow
Outlet & Mall Management
49 Food Courts in Singapore, 2 Food Court in Macau.
16 Coffee Shops, 1 Hawker Centre and 1 Commercial Mall in Singapore.
F&B Retail
74 F&B Stalls (Singapore), 4 F&B Stalls (Macau)
23 F&B Kiosks (Singapore), 2 F&B Kiosks (Macau)
7 Quick-Service Restaurants (Singapore)
4 Full-Service Restaurants (Singapore)
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The group is also on the lookout for opportunities to expand the brand to the Philippines and Thailand (potentially through JVs), in line with its strategy to expand overseas once the brand has established a strong foothold in Singapore.
They are trying to make a footprint not only in Singapore but Macau also. They also already secured a lease in Malaysia, Malacca and opened their first R&B Tea outlet in Mahkota Parade Melaka back in November, last month.
They are trying to make a footprint not only in Singapore but Macau also. They also already secured a lease in Malaysia, Malacca and opened their first R&B Tea outlet in Mahkota Parade Melaka back in November, last month.
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Koufu’s integrated facility in Woodlands Ave 12 is also expected to be completed in 1H 2020 which I believe will contribute even more to the group’s earning. The facility will have collaborative features that will generate recurring rental income, such as smaller central kitchen, to support their expansion and growth. They are also exploring potential partnerships for dim sum and bakery items to widen their customer reach to third-parties and to expand their range of products sold at retail outlets. (pic below)
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I'm also expecting Koufu's dividend to have a steady growth and their policy is to pay at least 50% NPAT generated for 2018 and 2019.
If you remember what i typed at the start of this post, Koufu's 3Q report showed a 52.3% jump in NPAT generated for 3Q19 and 24.6% jump for total 9M19 which means that investors can expect a bigger dividend payout this year!
(pic below for confirmation - #8)
Lastly, i will be keeping a close watch on this stock for the next 2-3 quarters because Koufu is expected to open 29 New Bubble Tea Stalls, 5 F&B Kiosks and 2 New Food Court which will contribute even more to their revenue and profit.
That will be all for today! Thanks for reading :)
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