I have received a number of requests from fellow community members in InvestingNote over the past couple of months asking me to do a company analysis of Koufu Limited (SGX:VL6).

In my writeup about the F&B company today, you’ll learn more about the companies businesses, its financial results between FY2018 and FY2019, dividend payout history, catalysts and threats which I feel may positively or negatively affect the company’s growth ahead, and finally, its current vs. historical valuations to find out whether or not at its current share price, Koufu is considered cheap or expensive.

Let’s get started…

A Brief Introduction to Koufu Limited

Koufu is a brand familiar to Singaporeans – the company operates foodcourts/coffeeshops under its namesake brand. At the time of writing, there are a total of 37 Koufu foodcourts in Singapore.

Apart from its namesake foodcourts, the company also operates foodcourts/coffeeshops under the following brand names (with the number of outlets at the time of writing in brackets):

• Cookhouse by Koufu (5 outlets)

• Rasapura Masters (1 outlet)

• Fork & Spoon (2 outlets)

• Happy Hawkers (18 outlets)

• Gourmet Paradise (2 outlets)

The company has also businesses in the following:

F&B Kiosks & Stalls:

• R&B Tea (27 outlets)

• 1983 – A Taste of Nanyang (3 outlets)

• Supertea (1 outlet)

Cafes & Restaurants:

• 1983 – Coffee & Toast (3 outlets)

• elemen 元素 (4 outlets)

• Grove 元素 (1 outlet)

Shopping Mall:

• Punggol Plaza – a 4-storey development comprising about 50 retail outlets. The mall is managed by Abundance Development Pte Ltd, a subsidiary of Koufu Pte Ltd

Overseas:

Besides Singapore, Koufu also have business operations in Malaysia and Macau, where they operate under the following brand names (with the number of outlets at the time of writing in brackets):

• 1983 – A Taste of Nanyang (2 outlets in Macau)

• Koufu (2 outlets in Macau)

• R&B Tea (1 outlet in Malaysia, 1 outlet in Macau)

 

Financial Performance of Koufu Ltd between FY2018 and FY2019

Having gotten a good understand of Koufu’s business operations in the previous section, in this section, I will be taking a look at some of the company’s key financial performances between FY2018 and FY2019 (the company has a 31 December year end):

Revenue (S$’mil):

	FY2018	FY2019
Revenue (S$’mil)	$224m	$238m

In the latest financial year (i.e. FY2019), its revenue recorded a year-on-year (y-o-y) improvement of 6.3%, due to revenue contributions from its newly opened foodcourts (5 in total), coffee shop (1 in total) in FY2019, 7 new F&B stalls in the foodcourts, 2 new full-serviced restaurants, and 20 new F&B kiosks all opened in FY2019, along with revenue growth from most of the foodcourts and coffee ships.

 

Net Profit (S$’mil), and Net Profit Margin (%):

	FY2018	FY2019
Net Profit (S$’mil)	$24m	$28m
Net Profit Margin (%)	10.9%	11.7%

With an improvement in the company’s revenue in the 2 financial years we’ve looked at above, Koufu’s net profit and net profit margin both saw y-o-y improvements as well.

 

Return on Equity (%):

Return on Equity, or RoE, is a measure of profitability (in percentage terms) for every dollar of shareholders’ money a company uses in its business.

The following table is Koufu’s RoE I’ve calculated:

	FY2018	FY2019
Return on Equity (%)	26.8%	27.1%

Compared to the previous year, the company’s RoE improved by 0.3 percentage points.

 

Debt Profile of Koufu Limited between FY2018 and FY2019

Whenever I study about a company, one of the areas I focus my attention on is the company’s debt profile, to make sure that it does not take on too much debt.

The following table is Koufu’s debt profile:

	FY2018	FY2019
Cash & Cash Equivalents as at the End of Period (S$’mil)	$61m	$90m
Total Borrowings (S$’mil)	$5m	$5m
Net Cash/Debt (S$’mil)	+$56m	+$85m

I am happy to see an improvement in Koufu’s cash and cash equivalents, and that the company is in a better net cash position compared to the previous year. Not just that, it also has minimal borrowings.

 

Dividend Payouts to Shareholders over a 2-Year Period

The management of Koufu pays out a dividend to shareholders on a half-yearly basis – but in FY2018, there was only one payout declared as it was only listed in the second half of 2018 (on 18 July 2018.)

The following table is Koufu’s dividend payout to shareholders, along with its dividend payout ratio:

	FY2018	FY2019
Dividend Per Share (S$’cents)	1.2 cents	2.5 cents
Dividend Payout Ratio (%)	25%	50%

From the looks of the company’s dividend payout ratio, it seems to me that the company is looking to pay out 50% of its earnings to shareholders as dividends.

Moving forward, as long as the company is able to maintain its top- and bottom-line growth, it should have no problem maintaining its 2.5 cent/share of dividend payout annually. In fact, should the company’s financial results were to record improvements, I feel that they may even up their dividend payouts to shareholders.

 

Catalysts and Threats which May Impact Koufu’s Businesses Ahead

The following are some of the catalysts and threats which I feel may positively or negatively impact Koufu’s businesses in the months/years ahead:

Catalysts:

• Opening of new stores to further improve the company’s top- and bottom-line performances, just like what we have seen in the results of FY2019

• Further expansion of its businesses to other geographical locations (I understand that Koufu is looking to expand in Indonesia, as well as in Malaysia, the Philippines, and Thailand in the year ahead)

• Better-than-expected growth in their businesses

Threats:

• In the near-term, the outbreak of Covid-19 may affect earnings from its businesses in Macau, as well as in its Rasapura outlet in Marina Bay Sands due to a drop in tourist arrivals

• Higher-than-expected competition in businesses they have operations in

• Any unforeseen circumstances disrupting their expansion plans

• Departure of key tenants in their foodcourts/coffeeshops

 

Is the Current Share Price of Koufu Considered Cheap or Expensive?

One of the easiest ways I use to determine whether or not the current share price of a company is considered cheap or expensive is to take its current valuations, and compare against its historical average.

The following table is Koufu’s valuations between FY2018 and FY2019, along with the average:

	FY2018	FY2019	Average
P/E Ratio	12.9	15.4	14.2
P/B Ratio	3.7	4.2	4.0
Dividend Yield	2.0%	3.3%	2.7%

At the time of writing, Koufu is trading at $0.590. As such, its current valuations is as follows:

P/E Ratio: 12.1
P/B Ratio: 3.3
Dividend Yield: 4.2% (calculated based on a 2.5 cents/share dividend payout in FY2019)

Comparing its current and historical valuations, the current share price of Koufu is considered cheap, due to its lower-than-average current P/E and P/B ratios, along with a higher-than-average current dividend yield.

 

In Conclusion

I consider Koufu’s business a “bread and butter” one, considering many Singaporeans settle their meals in foodcourts and coffeeshops these days, and regardless of the economic situation, many will still continue with their bubble tea consumption.

I like the company for its improving financial performances, minimal debt, and improving net cash position, and I am confident of the company’s continued growth in the years ahead.

Disclaimer: At the time of writing, I am not a shareholder of Koufu Limited.

 

Thanks for reading.

Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote. 

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