Singapore food-court operator Koufu started at Buy by DBS

Singapore two-dollar bills

DBS started Koufu at Buy with a S$0.84 target price, saying the operator of 48 Singapore food-courts and 14 coffee shops, and one food-court in Macau, generates strong cashflow in a defensive business.

“Koufu is an established foodcourt and coffee shop operator and manager in Singapore with multiple brands. It has complementary business segments with diversified revenue streams from outlet & mall management business and F&B retail business,” DBS said in a note this week. “It has quality stall operators and manages them actively to ensure high occupancy. Its central kitchens and strong supply chain facilitate cost management and operational efficiency.”

DBS said it liked the stock for its strong cash-flow generation, defensive earnings and a net cash balance sheet, adding the dividend yield is “decent” at 3.8 percent on a 50 percent payout of earnings.

But it added that it expected growth would be “largely stable,” with revenue growth offset by higher costs over the next two years.

For 2017, Koufu posted net profit of S$26.9 million on S$216.7 million in revenue, DBS noted, adding that for 2015-17, its three-year net profit compound annual growth rate (CAGR) was 14 percent, on 4 percent CAGR in revenue and a 2 percentage point margin expansion.

“We believe there is value for investors,” DBS said. It estimated the stock is currently trading at a price-to-earnings valuation of 13.2 times fiscal 2019 earnings per share forecasts, “significantly lower” compared with the peer average of 17 times price-to-earnings.

Shares of Koufu were up 0.75 percent at S$0.675 at 15:36 SGT.

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