• Jobs Support Scheme (JSS) grants to be enhanced to 50% from 10%.
• Footfalls at food courts dropped following Singapore’s move to Phase 2 (Heightened Alert).
• Commencement of integrated facility operations delayed to 3Q21.
• Downgrade from ACCUMULATE to NEUTRAL with a lower target price of S$0.64 from S$0.68. Still based on 18.5x FY21e, the average of its peers. We cut revenue for FY21e/FY22e by 1.8%/1.9% and PATMI by 6.1%/8.0% as the consumption recovery is taking longer to pan out.

Koufu provided an operational update on the impact of Singapore’s move from Phase 3 (Heightened Alert) to Phase 2 (Heightened Alert) following a sharp spike in unlinked community COVID-19 cases. In a bid to curb the chain of transmissions, further restrictions have been imposed. These include prohibition of dining in at all food outlets, a capping of social gatherings and activities to two persons, reduced capacity for malls and work from home as the default mode of operations.

Positives

+ JSS support to be enhanced to 50% from 10%. To tide the F&B sector during this period, government support under the JSS will be enhanced to 50% instead of the initial 10% for wages paid up to June 2021. We estimate the Group will receive about S$600,000 in government grants, which would lift its total government grants to S$1.6mn in FY21e.

+ Marginal improvements in Macau. Macau reopened its borders to foreigners via mainland China on 16 March 2021. This led to a slight improvement in footfalls at malls and food courts during the recent Labour Day holidays in May 2021. All of Koufu’s food courts at the University of Macau, Nova City and Cotai Sands remained operational, though footfall and revenue were lower than pre-COVID levels. The negative impact has been mitigated partially by rental waivers and rebates from landlords.

Negatives

– Footfalls dropped after Singapore’s move into Phase 2 (Heightened alert). The Group’s operations in food courts, coffee shops and restaurants have been hurt by lower footfalls in malls and tertiary institutions. While its food outlets remain operational for takeaway and delivery, food courts near offices and in downtown areas, tourist hotspots and tertiary institutions where staff and students have transitioned to home-based learning has been affected the most.

Outlet & mall management: While the Group’s revenue from outlet & mall management comprises mainly fixed rental income from stall tenants, a portion is directly linked to the performance of stallholders in certain food outlets, where a component of the fee is variable in nature and pegged to the gross turnover of the stall.

F&B retail business: Earnings negatively impacted by lower footfalls in malls and tertiary institutions. Koufu has temporarily suspended the operations of both the Koufu food court and Grove quick service restaurant at Singapore Management University and two R&B Tea kiosks at Far East Square and Change Alley Mall during this period due to low footfalls at these outlets.