DBS downgraded Koufu to Hold from Buy after the stock’s around 20 percent run-up since the bank started coverage in August.
“We are now neutral on the stock as valuation has re-rated and is no longer at a discount to peers,” DBS said in a note on Tuesday. “Share price upside is limited at this juncture due to valuation, and we advocate investors to take profit.”
With the stock’s rise, the dividend yield has also declined to 3 percent from 3.8 percent, DBS added.
But the bank added that Koufu’s fundamentals remained “sound.”
“Koufu still has strong cashflow generation capability, defensive earnings, net cash balance sheet, and strong return on average equity,” the note said.
DBS said Koufu’s first quarter earnings were in line with its forecasts.
Food court operator Koufu reported Monday its first quarter net profit increased 12.3 percent on-year to S$7.0 million on the addition of new food courts and new food and beverage kiosks.
DBS said it would revisit its rating when catalysts for earnings upgrades or special dividends emerge, or if valuations turn “more palatable.”
It pointed to potential catalysts emerging over time from realizing economies of scale over the longer term and from potential special dividends when Koufu sells its existing central kitchen property before moving into its new facility.
Growth this year is expected to come from the full-year contribution of the net two new food courts which opened last year, and the Marina Bay Sands Foodcourt, which was temporarily closed from April through July 2018, DBS said.
It kept its target price unchanged at S$0.80.
The stock was down 2.61 percent at S$0.745 at 9:40 A.M. SGT.
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