Broker's take: DBS downgrades Koufu to 'hold', sees reduced footfall hurting earnings
DBS Group Research has downgraded Koufu to "hold" as it expects earnings to take a hit from reduced footfall at Koufu's foodcourts due to the extension of the circuit-breaker period.
It cut its 12-month target price for the food and beverage (F&B) operator to S$0.68 from S$0.84. Shares of Koufu were down one Singapore cent or 1.6 per cent to 60.5 cents as at 2.54pm on Wednesday.
In a report on Wednesday, DBS analysts cut their FY20/21 earnings forecast for Koufu by between 5 and 19 per cent.
The analysts said footfall at foodcourts in schools, malls, workplaces and heartlands will be affected by the extended circuit-breaker period and more people staying at home.
DBS noted that the stock stands to gain from the foodcourt business, but "the overall lower footfall will have an overhang on the stock".
Additionally, lower tourist arrivals are affecting Koufu's Macau and Marina Bay Sands outlets, both of which contribute substantially to earnings.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The existing circuit-breaker measures in place have reduced footfall at Koufu's foodcourt outlets by more than 25 per cent, DBS noted.
Meanwhile, its R&B and Supertea businesses have been suspended due to new circuit-breaker measures, which include suspension of non-essential F&B outlets such as standalone drink stalls and bubble tea outlets.
Koufu has a total of 27 R&B and Supertea outlets as at the end of FY2019.
Potential catalysts for the stock will stem from a recovery of Covid-19, economies of scale over the long term and special dividends from the sale of its existing central kitchen property before it moves to a new integrated facility, DBS said.
Key earnings risks include a failure to renew leases, an inability to secure new outlets and the departure of key tenants and food stalls.
Customers downtrading to hawker centres and coffee shops and competition from foodcourts that offer more attractive propositions to customers are also key risks, DBS added.
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Companies & Markets
Inside TSMC chairman Mark Liu's short but impactful reign
CSE Global bags US$36.5 million data centre contract extension
Keppel DC Reit reports 13.7% lower Q1 DPU of S$0.02192 amid loss allowances
Gazelle Ventures makes cash offer for No Signboard shares at S$0.0021 apiece
Singapore shares open higher on Friday; STI up 0.2%
TSMC estimates losses of US$92.4 million due to Taiwan earthquake