Positives
+ Marked improvement in footfalls in Singapore and Macau. 2H20 footfalls at outlets and malls recovered slightly as the economy reopened. We estimate that food courts located near offices recovered by 30% HoH in 2H20 as restrictions eased. Footfalls and demand in food courts and coffee shops in the heartlands were stable. Footfalls in Macau recovered by 30% in 2H20 even though this was still about 60% below pre-COVID levels.
+ Marked recovery for F&B Retail in 2H20. F&B Retail was its biggest drag in 1H20 as this segment does not have fixed rental income from stall tenants, unlike Outlet & Mall Management. A resumption of operations after the circuit breaker in this segment led to an uptick in takings. Revenue in 2H20 was up 43% HoH. The uplift was also helped by contributions from Deli Asia Group, acquired on 30 July 2020.
+ New store openings resumed in 2H20; more to come in 2021. The Group opened one new food court, two R&B Tea kiosks and two Dough Culture kiosks in 2H20. The two new Dough Culture kiosks brought total outlets to nine since its acquisition of Deli Asia Group last year. The Group now expects to hit its target of 20 Dough Culture kiosks in three years instead of five under its previous plan.
For 2021, the Group has secured and will open three new food courts at Sun Plaza, Woodlands Height (Koufu’s new HQ) and NTU in the second quarter of 2021.
Koufu opened a third food court in Macau at Nova City in 3Q20. The current occupancy for food stalls remains at 100% even though business operations remain at reduced levels (~40% pre COVID-19) given lower number of visitors and travellers. Mainland China and Macau have slowly reopened its borders, along with the lifting of the 14-day quarantine policy on the Macau-Guangdong borders in July 2020.
Negatives
– Consumption recovery slower than expected. With work from home being the default arrangement, consumption recovery at food courts near offices, downtown and in tertiary institutions remains slow. Footfalls at Rasapura Masters and Elemen Restaurant at Marina Bay Sands remain low as travel restrictions are still in place. We estimate that footfalls and takings at both will remain at 45% of pre-COVID-We19 levels this year.
– Expected TOP of IF delayed again, to 1Q21. The progress of the construction of the IF has been delayed due to the COVID-19 measures introduced in both Singapore and Malaysia (where certain materials have been sourced from). The Group expects further delay in the TOP, to be in the first quarter of 2021, at the earliest, as the commencement of construction has been delayed. Management now expect to move into the IF in the second quarter of 2021 and to commence operation in 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.
In light of the slower than expected consumption recovery, we lowered our revenue estimates for FY21e and FY22e by 6.5% and 6.2% respectively. Consequently, profit for FY21e and FY22e is reduced by 11.5% and 10.4% respectively from negative operating leverage and the delay in completion of the IF.
Update on Deli Asia acquisition
Koufu completed its acquisition of Deli Asia on 30 July 2020. The acquisition is expected to fast-track its revenue diversification and expansion to complementary dim-sum snacks, fried foods and dough products. Deli Asia will give it access to new markets such as the supply of frozen and partial fried food products to third-party businesses, including supermarkets and overseas markets.
Since its acquisition, two new kiosks have been opened, in 2H20. Another three are in the pipeline this year. Management now expects to hit its target of 20 Dough Culture kiosks in three years instead of five. We expect Deli Asia to contribute about S$2.7mn and S$3.2mn in profits in FY21e and FY22e respectively.
Cost-savings expected from move into integrated facility. The Group will move the manufacturing of Deli Asia’s food products to its new integrated facility when ready. This will save it rental costs from the two facilities that Deli Asia currently operates in.
Outlook
We continue to 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 in the midst of sourcing for buyers for their two existing central kitchens, we see the announcement of a sale of their existing central kitchens as a catalyst for the Group.
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
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.
