DBS upgraded foodcourt operator Koufu to Buy from Hold, pointing to expectations for higher net earnings growth of 8.8 percent in 2019 and improved valuations after an around 12 percent stock correction.
“Earnings growth will be driven by the turnaround of its foodcourt and kiosk businesses,” DBS said in a note last week.
It increased its 2019-20 earnings forecasts by 7 percent each to include contributions from the Supertea and R&B kiosk business, better foodcourt sales efficiency and lower depreciation.
“We also see earnings in FY2020F led by a higher store base for R&B and Supertea kiosks with our break-even expectations for these new stores now faster than anticipated,” DBS said.
In addition, DBS noted that the “other eating places” segment in Singapore government statistics, which includes foodcourts, has been seeing a recovery in recent months, picking up in 2019 after on-year declines in 2017 and 2018.
“This can be attributed to the decline in GDP growth where consumers are switching from higher-end F&B foodservice outlets to more economical coffeeshops, foodcourts and hawker centers,” DBS said.
In addition, DBS said Koufu’s valuations were “more palatable” at 13.1 times 2020 price-to-earnings, with visible growth drivers, compared with levels around 16 times previously.
DBS raised its target price for Koufu to S$0.85 from S$0.80.
Shares of Koufu were up 2.17 percent at S$0.71 at 1:18 P.M. SGT.
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