Brokers' take: CGS-CIMB downgrades Koufu to 'hold' while awaiting recovery

CGS-CIMB has downgraded its call on Koufu to "hold" while lowering its target price to S$0.71 from S$0.94, as it expects the group's recovery to be weighed down over the near term due to reinstated Phase 2 (Heightened Alert) dine-in restrictions in Singapore.

The new target price is pegged to 17 times FY2022 price-to-earnings estimates based on a 20 per cent discount to peers, versus 19 times previously, in view of Koufu's comparatively smaller market cap.

In a report on Thursday, the research house said it projects the group's H1 FY2021 revenue to rise just 5 per cent on year with a weaker Q2 due to the reinstated Phase 2 measures, even with the possibility of easing dine-in restrictions after June 13.

"As announced by Prime Minister Lee on 31 May 2021, measures are likely to ease going forward, but it is highly unlikely for distancing measures to return to what they were in Q1 2021 (up to eight people allowed for gatherings) so soon, in our view," noted CGS-CIMB analysts.

"As Singapore shifts towards a hybrid work-from-home model, we expect footfall recovery at (malls, schools and office outlets) to remain an overhang for FY2021to FY2022 earnings."

In addition to slower-than-expected footfall recovery, the research house believes border reopening remains a near-term uncertainty for the group as tourist arrivals in Singapore and Macau remain weak.

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Potential gross profit margin expansion has also been postponed due to delays in the commencement date of Koufu's new integrated facility, which has been pushed back by a quarter to Q3 of FY2021.

As such, CGS-CIMB has cut its FY2021 to FY2023 earnings per share estimates for Koufu by 4 to 12 per cent, respectively.

Nonetheless, its analysts said they continue to like the group for its strong balance sheet. They believe its net cash position of about S$62 million as at end-FY2020 gives it sufficient dry powder for working capital requirements as well as potential merger and acquisition opportunities as the economy recovers.

"We note that Koufu has ramped up its food delivery presence since Q2 2020, which should partially offset the decline in dine-in sales. Q2 FY2021 revenue should also be aided by takeaway sales from Dough Culture and R&B Tea outlets, as these stalls mostly offer takeaway food and beverages. Enhanced support from the Jobs Support Scheme should also further dampen the impact," said the analysts.

As at 11.01am on Friday, shares of Koufu were trading 0.5 Singapore cent or 0.8 per cent lower at 65.5 cents.