Brokers' take: Maybank KE initiates Koufu with 'buy' call, S$0.78 target

MAYBANK Kim Eng (Maybank KE) sees food court operator Koufu Group VL6  : VL6 0%as a key beneficiary of Singapore's easing Covid-19 curbs as the city state "remains firmly on the path of reopening".

In an initiation report on Monday (Oct 11), the research house commenced coverage on Koufu with a "buy" call and S$0.78 target price - which is based on 18 times FY2022 price-to-equity, in line with its local peers.

Maybank KE is forecasting the group's FY2021-2023 earnings to rise by 77.5 per cent, 40.6 per cent and 22.4 per cent, respectively.

This is to be mainly driven by improvement in overall footfall at its food outlets as well as contributions from new stores, and its Delisnacks and Dough Culture brands acquired in July 2020, said Maybank KE analyst Eric Ong.

"Given its food and beverage (F&B) retail sales are made on cash terms, Koufu's business is highly cash-generative and has a strong operating cash flow with a healthy balance sheet. This allows the group to continually look for accretive merger and acquisition opportunities to further diversify its revenue stream," he opined.

Ong likes Koufu for its diverse portfolio of 14 complementary brands which "enables the group to reach out to different market segments at differentiated price points, to expand its market share and capture business growth in each target segment", in his view.

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In particular, he thinks the group's latest acquisition of Delisnacks and Dough Culture represents a "highly synergistic deal" that effectively fast-tracks the group's revenue diversification and network expansion in complementary dim sum, snacks and dough products.

The new brands also strengthen Koufu's supply chain with the expansion of its production and manufacturing capabilities, said Ong.

The analyst further believes Koufu's new integrated facility, which obtained TOP (temporary occupation permit) in April 2021, will deliver scale when operations begin in Q4 this year.

Space at the facility will be used to operate a food court, a cloud kitchen and a staff dormitory.

"The group seeks to further improve its productivity through increased automation of its operations and researching food preparation processes. We think this could help to boost productivity and allow Koufu to attain higher cost efficiency," he added.

As at 2.48pm on Tuesday, the counter was down S$0.005 or 0.8 per cent at S$0.64.

READ MORE: 

• Koufu's first-half profit nearly quadruples to S$9.9m

• Koufu expects dining-in ban to hit revenue and operating profits for FY2021

• Koufu focuses on homeground expansion amid Covid-19 pressures