Asked by Anonymous

(Stocks Discussion) SGX: Koufu Group Limited [SGX: VL6.SI]?

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!

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  • Isaac Chan
    Isaac Chan, Business at NUS
    Top Contributor

    Top Contributor (Apr)

    Level 7. Grand Master
    Answered on 18 Apr 2019

    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?

    Strategic Expansion

    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

    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.

    Gearing Ratio

    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.

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