Brokers' take: UOBKH, Phillip Securities see potential special dividend from Koufu

UOB Kay Hian (UOBKH) and Phillip Securities have highlighted the possibility of food court operator Koufu Group issuing a special dividend from its proposed disposal of its property assets.

To recap, the group on March 11 announced its intention to sell 18 and 20 Woodlands Terrace - where the group's existing central kitchens and corporate headquarters are located - for a consideration of S$11.8 million.

UOBKH analyst John Cheong estimates that the sale could generate gains of S$9 million, which forms 60 per cent of his FY2021 earnings forecast for Koufu. Such gains would translate to a higher dividend of 1.8 Singapore cents per share or a dividend yield of 2.7 per cent, he said in a Monday report.

This is however yet to be factored into UOBKH's earnings forecasts as the transaction is subject to approval from Jurong Town Corporation.

As such, the brokerage maintains its "buy" call on the stock with an unchanged target price of S$0.77.

"The proposed disposal is in line with the group's intentions to sell the properties within two years of obtaining the Temporary Occupation Permit for the property located at Woodlands Avenue 12, on which its integrated facility is being constructed," noted Mr Cheong.

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He said the consideration value is also within UOBKH's expectations that the properties could fetch S$10 million based on the average market price in similar transactions.

"Management highlighted that the purchase consideration took into account the valuation of the properties of S$10.1 million, based on the independent valuation report of PREMAS Valuers & Property Consultants dated Feb 22, 2021 as commissioned by the company," Mr Cheong added.

On the other hand, Phillip Securities expects the group to realise a higher S$10 million gain from the proceeds of the disposal.

While this could result in a special dividend of 1.8 Singapore cents per share, Koufu may opt to retain some of the proceeds in the near term for working capital requirements considering the current climate, said the research house in a separate note on Monday.

It has maintained its "accumulate" rating on the stock with an unchanged target price of S$0.68.

"We believe Koufu may distribute the gains from the disposal over a two-year period rather than as a one-off special dividend," noted Phillip Securities analyst Terence Chua.

Looking ahead, Mr Chua remains positive on the group's outlook as he foresees recovering footfalls and revenue from its food courts and coffee shops.

He also expects the completion of Koufu's new integrated facility to yield cost savings while providing an additional revenue source from the rental of about 25 per cent of the space. 

As at 2.18pm on Monday, shares of Koufu were trading half a Singapore cent or 0.8 per cent higher at 67 cents.