The crowds are returning

■ 3QCY21 was plagued by restrictive dine-in measures, but Kimly’s 2HFY9/21 was above expectations. Koufu’s results were in-line, while Jumbo missed.
■ 4QCY21F could remain weak as dine-in measures were only eased starting 22 Nov 21. We expect a better recovery in CY22F.
■ Maintain sector Overweight as we expect a CY22F earnings recovery and valuations are attractive. Kimly and Koufu are Add calls. Jumbo is a Hold.

A tough quarter due to tight Covid-19 measures

3QCY21 (Jul-Sep) had been a tough quarter for the F&B sector due to implementation of more restrictive dine-in measures. Dine-in services were banned from 22 Jul to 18 Aug, with measures easing slightly to allow 5 pax dine-in from 19 Aug to 26 Sep. Despite the tough environment, Kimly’s 2HFY9/21 net profit of S$17.5m (+19% yoy) came in above expectations. It also declared a special dividend, bringing full year dividend yield to c.5%. Koufu’s performance was in line with our expectations. While its 3Q21 same-store sales fell 20% vs. 3Q19, we believe it remained relatively flat on a yoy basis. Jumbo’s performance was below expectations, with its 2HFY9/21 net loss widening to S$7m (vs. 1HFY21’s -S$4m), as revenue from Singapore outlets plummeted 37% yoy.

4Q21F may remain challenging, before a better recovery in CY22F

With effect from 22 Nov 21, up to 5 vaccinated patrons will be allowed to dine in F&B outlets in Singapore (for coffee shops and hawker centres, only those with vaccination checking systems in place will be eligible for the new measures; else gathering size is capped at 2 pax). We hence believe 4Q21F will still be challenging, but 2022F should be better amid continued easing measures and ramp-up in inbound tourists.

Bite-size nuggets: heading into 2022

We see stronger earnings for Kimly and Koufu in FY22F on the back of easing dine-in restrictions and accelerated outlet expansion plans leveraging on their strong balance sheets. Kimly: we forecast FY22F net profit to grow 4% yoy with consolidation of recently acquired Tenderfresh from 1 Oct onwards. Hybrid work-from-home arrangement should continue supporting heartlands footfall. Koufu: Operations have commenced at the Integrated Facility in 4Q21, which we think could start contributing positively in FY22F. Potential reopening of Macau’s borders will also help. Jumbo: We expect Jumbo to return to the black only in 2H22F as tourists return, albeit at a gradual pace.

Reiterate sector Overweight, valuations currently attractive

Reiterate sector Overweight on the back of earnings recovery in FY22F and attractive valuations. Given Singapore government’s prudent approach in measures relaxation, we think dine-in measures are less likely to be re-tightened again. We prefer Kimly and Koufu to Jumbo due to their higher mass market exposure. Key upside/downside risks include pace of relaxation of Covid-19 measures and return of tourists.