• Koufu's 1H21 net profit of S$10m (+35% h-o-h) above expectations due to lower-than-expected rental expenses from outlets under management.
• We see a more positive outlook for 2H21F on the back of resumption in dine-in activities. A strong balance sheet supports accelerated outlet expansion.
• We believe the worst is over; upgrade Koufu from Hold to ADD, with a higher target price of S$0.80. Catalysts are quicker easing of restrictions and border reopening.

Koufu's 1H21 Results Above Expectations Due to Lower Rental

• Koufu (SGX:VL6) reported 1H21 net profit of S$10m (+35% h-o-h, +291% y-o-y), above expectations at 61% of our and 54% of Bloomberg consensus FY21F estimates. Increased takeaway and delivery sales helped to mitigate lower footfall observed during Phase 2 (Heightened Alert) from 16 May to 13 Jun, resulting in topline growth to S$105.7m (+2% h-o-h, +19% y-o-y).
• Key outperformance came from stronger-than-expected operating profit from Koufu’s outlet management division, thanks to reduced rental expenses.

The Worst Is Over as Singapore Gradually Curbs Restrictions

• We turn more positive on the Singapore F&B sector due the back of higher SSSG assumptions.

Accelerated Pace of Outlet Expansion

• Koufu has been ramping Koufu's management is also looking out for inorganic growth opportunities within the mass market F&B space.

Upgrade Koufu to ADD With Higher Target Price of S$0.80

• Upgrade Koufu from Hold to ADD, as we believe the worst is over for the Koufu. We like Koufu for its defensive earnings profile, strong cash generative business, and solid balance sheet. Our target price of S$0.80 is pegged to 17x CY22F P/E, based on ~20% discount to peers’ in view of its smaller market cap.

• Potential re-rating catalysts include swift improvement in F&B footfall, and increased tourist arrival numbers.
• Downside risks include heavier-than-expected startup losses from the commencement of its Integrated Facility in 2H21F.
• Kimly (SGX:1D0) remains our sector top pick within the F&B sector as we believe its higher exposure to the heartlands allows it to benefit from structural shifts towards the increasing prevalence of work-from-home arrangements.

Source: CGS-CIMB Research - 11 Aug 2021