• Leading foodcourt and coffee shop operator with 48 foodcourts in Singapore and one in Macau.
• Strong cashflow generative business of over S$30m a year with dividend payout at 50% earnings in FY18-19F.
• New integrated facility to drive long term growth.
• Initiating coverage with BUY with Target Price of S$0.84.

Initiate With BUY, Target Price S$0.84

We initiate coverage on Koufu with a BUY recommendation and Target Price of S$0.84. 

Koufu is one of the largest foodcourt and coffee shop operators in Singapore with 48 foodcourt outlets and 14 coffee shops. It also has one foodcourt in Macau.

We like the stock for its strong cashflow generation capability, defensive earnings, and net cash balance sheet. Koufu’s return on average equity (ROAE) is one of the strongest among peers, at 25.4% for FY19F. Dividend yield is decent at 3.8% on a payout of 50% of earnings. 

We expect growth to be largely stable going forward, with revenue growth offset by higher costs. We see higher revenue led by new foodcourts in Singapore and Macau, with higher operating costs and depreciation partially offsetting the increase in revenue. 

Longer term drivers include the setting up of an integrated facility aimed at delivering economies of scale, and overseas growth in Macau. 

Stock catalyst will stem from realisation of economies of scale over the long term and special dividends from sale of existing central kitchen property before moving into the new integrated facility.

Source: DBS Research - 27 Aug 2018