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Khairani Afifi Noordin Published on Tue, Oct 12, 2021

Maybank Kim Eng analyst Eric Ong has initiated “buy” on Koufu Group with a target price of 78 cents.
The target price is based on an 18 times FY22E price-to-earnings ratio, in line with its local peers, says Ong in a Oct 11 report.

Backed by its robust cash flow-generative business, the company is currently in a net cash position of $68.8 million, says Ong.

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He adds that Koufu is seen as one of the key beneficiaries of Singapore’s reopening as the island transitions towards Covid-19 resilience.

“Despite the government’s cautious approach, Singapore remains firmly on the path of reopening, as it extends quarantine-free travel to more countries, with almost 85% of the population fully vaccinated. Hence, we believe footfall at its outlets will improve once the restrictions are gradually eased,” says Ong.
Backed by its strong balance sheet and net cash position, Koufu continues to expand and strengthen its presence with new food and beverages (F&B) outlets in Singapore and overseas. In 1H21, Koufu opened one food court with one self-operated F&B stall, two R&B Tea kiosks and three Dough Culture kiosks in multiple locations.

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Another two new food courts at Marina Square, NTU and one food court shop at its new Koufu headquarters were opened in 3Q21.

To widen its footprint in Singapore, Koufu had recently opened a food court at Outram Community Hospital. It also secured leases for a Dough Culture kiosk at Jurong East MRT Station and a Grove quick service restaurant at Northshore Plaza in 4Q21.

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Moving forward, Koufu’s expansion plans will focus on new housing estates, hospitals, malls and tertiary education institutions. The company is also actively looking for joint ventures partners to bring the R&B Tea brand to Thailand and Malaysia as it progressively introduces other F&B retail brands into various markets.

The company also aims to set up at least 20 outlets by FY23E to further expand the Grove brand. Maybank Kim Eng expects the new stores to contribute positively to its organic growth upon opening.

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Meanwhile, Koufu obtained a Temporary Occupation Permit in April 2021 for its new integrated facility in Woodlands. The company expects to progressively commence operations from the integrated facility starting in 4Q21, says Ong.

He adds that about 75% of the 20,000 sq m gross floor area will be used for its own operational purposes including a cloud kitchen, while the rest has been fully sublet to third-party operators.
As at 5.16pm, shares in Koufu are trading 1.55% higher at 65.5 cents, with an FY21E price to book value of 3.3 times and dividend yield 3.2%.