Asked on 18 Apr 2019
Discuss anything about share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell this stock on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment!
Koufu operates in Singapore and Singapore has a limited market...
What is something unique that attracts customers to Koufu? usually, it is more of convenience factor. These days, there are non-profit food court operators too. I will avoid this company.
TL;DR Koufu is definitely a brand most of us recognise, and revenue has grown over the past few years due to strategic initiatives. However, the F&B space in Singapore is very competitive.
What is their business profile?
I don’t think there is much to explain about the business profile of Koufu. They are a household name, and many of us patronise their foodcourts quite frequently (i do!). Other than food courts and coffee shops, they also include tea kiosks, full service and quick service restaurants.
What is Koufu’s current focus?
One of their growth strategies is to grow more outlets, while maintaining current ones. With expansion in Macau already, Koufu can tap on the experience and offerings to reach into different parts of the Chinese market as well.
Innovation and Productivity
Koufu has been trying to improve innovation within their outlets. For example, they have the smart tray return robots, which sometimes roam around the foodcourts. Such moves are aimed at encouraging diners to return their trays which would potentially free up more space for additional diners to sit. It is also supposed to reduce manpower costs. However, from what I have seen, this strategy doesn’t seem to be working very well. The robots are not in use, and they haven’t been cleared fast enough such that I couldn’t clear my crockery there.
How might the business fare in the future?
Tough Retail and F&B Market
As many of us know, the retail market in Singapore hasn’t been doing too well. This could be caused by the growth of e-commerce, but could also be caused by more malls being introduced over time without population growing. This also means that there is limited potential for the company to grow in the future. Unfortunately, having the bulk of its revenue coming from Singapore doesn’t help either.
Food safety and licences
Potential lapses could lead to reputation being affected or licenses being revoked. Food contamination and tampering of food at certain stalls can also affect the publicity of Koufu very easily, especially in this digital age. Management of stores may also be more challenging with so many of them to look after.
What do the financials tell us?
Revenue has been increasing Year-On-Year since 2015 which peaked at 223m in 2018. This growing revenue is a positive sign, and could be due to the opening of new outlets across the island. Revenue is nicely split between Outlet & mall management business and F&B retail business.
However it is the outlet & mall management portion that experienced increases in revenue over the years, whereas F&B portion has been on a decline.
Profit Before Tax
Profit before tax margins had actually decreased from 2017. This is actually due to falling profitability for the F&B segment. If you actually compare the charts, you will notice that despite revenue for the F&B segment remaining relatively similar, profit before tax has actually been decreasing.
With a low gearing ratio of only 0.05, this means that the business does not hold much debt. This is positive because it means that the company pays little interest expense. Also, cashflow generated from operations can be used to grow the business rather than pay off your loans. This reduces the credit risk of the company.
Debt / Equity Ratio
With a D/E ratio of 0.74, this means that the business is funded more than equity rather than by debt. With this number decreasing over time, this suggest the business could be relying less on debt.
I seen the cases of Shack Shake, McDonald's, Dominos, HaiDiLao, etc.
They are growing so well because of their scalable franchise model and operating in huge markets.
I am not that optimistic for Koufu given its product is not highly differentiated.
Koufu recently released their quarterly results in November 2019.
So far the numbers are looking go and their expansion plans to Macau will bode well due to recent actions by China in wanting to make Macau a backup financial hub for hong kong. Most likely more people will visit Macau now.
You can check out my blog for a more detailed write up on Koufu: http://justbeingernest.blogspot.com/2019/12/why-did-i-invest-into-koufu-sgx-vl6.html
If you like watching videos, I have also put it up in my youtube channel: https://www.youtube.com/watch?v=HS0T_nRV3Io
I write cool stuff about personal finance and money-saving hacks here.
Rather invest in the shopping centres that lease foodcourt space to koufu than koufu itself. F&B tend to have high fixed overhead costs that increases anually (salaries, rental etc), while variable expenses such as food ingredient fluctuates.
Pretty good cashflow generating company because they run the food court and most of the stalls and sell to consumers.
However, the recent share price run up has made me feel the Price to Free Cash flow generation is too high, will advise to wait for the share price to lower before deciding again
Business wise, it is rather recession proof. In fact during economic down times, there may have more busienss because consumers will eat less at restuarants and more at food courts