Positives
+ Sale of two existing central kitchens ahead of schedule. Koufu has granted an independent third party purchaser an option to purchase its two existing central kitchens located at 18 and 20 Woodlands Terrace for an aggregate consideration of S$11.8mn, which works out to S$312 per sqft for their two central kitchens. The purchaser has exercised the option on March 11, and the consideration will be paid fully in cash. The proposed disposal is subject to and conditional upon the written in-principle approval from the Jurong Town Corporation.
The sale of the two existing central kitchens came ahead of the Group’s intention to sell the properties within two years of obtaining its temporary occupation permit (TOP), where the proposed integrated facility is being constructed. The TOP is expected to be obtained in the first quarter of 2021, and operations are expected to commence by the second quarter of 2021. The Group will be occupying 75% of the total gross floor area while the balance of 25% has been full tenanted out.
+ Gains from disposal to be distributed as special dividends. The Group will realise gains of over S$10.0mn from the sale over the carrying value of their two central kitchens as these properties have been held for over 10 years on their books. We believe the Group will distribute gains from the disposal amounting to 1.8 Singapore cents per share as special dividends to shareholders but they may opt to retain some of the proceeds in the near-term for working capital requirements given the current climate. As such, we believe Koufu may distribute the gains from the disposal over a two-year period rather than as a one-off special dividend
Outlook
We remain positive on the Group’s outlook post circuit breaker. We believe the recovery in consumption post circuit breaker will continue to improve footfalls and revenue of the food courts and coffee shops in 2021. We expect the completion of the Group’s new IF in 1Q21 to yield cost savings and provide an additional revenue source from the rental of the balance 25% space.
Koufu has proposed a final dividend of 0.7 cents per share for 2H20, bringing FY20’s payout ratio to 67% of earnings. The Group is currently awaiting written in-principle approval from the Jurong Town Corporation for the sale of their two existing central kitchens. We expect the Group to distribute the gains from the sale as special dividends to shareholders.
Maintain ACCUMULATE with unchanged TP of S$0.68
We update our FY21e earnings to account for the latest disposal and maintain our ACCUMULATE rating with an unchanged TP of S$0.68 as we benchmark our valuation to 18.5x FY21e (ex. exceptional gains), the average of its SGX listed peers.
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Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.
He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.
