I am a big fan of Singapore local Kopi (coffee) and will never give up one in exchange for any imported coffee. You will always find good locally made coffee in these 3 listed F&B companies discussed below.
As Peter Lynch has famously once said:
“Getting the story on a company is a lot easier if you understand the basic business. That’s why I’d rather invest in pantry hose than in communications satellites, or in motel chains than in fiber optics”
The local F&B retail space is currently facing headwinds from increasing human labor costs and rental. Yet in bad times or economic down turn, it provides a good defensive investment as consumers still have to eat regardless of good or bad times.
Don’t say Bojio…. check out below for 3 F&B companies (we showcase the company profiles and dive deeper into their numbers):
#1 Breadtalk (SGX: CTN)
Most people especially the Singaporean locals will know about Breaktalk which is especially well known for its pork floss buns.
It operates 3 main business segments – bakery, food court and the restaurant. Their brand portfolio consists Breadtalk for Bakery, the Food Republic for food court and include famous franchise rights for the restaurants below e.g.
- Song Fa Ba Kut Teh
- Michelin star-rated Din Tai Feng
- Toastbox etc
The company derives most of its revenue from Singapore but also from China, Hong Kong and the rest of the world.
#2 Kimly (SGX: 1D0)
Kimly manages a network of coffeeshops, food courts and food stalls all over Singapore. Kimly’s first coffee shop opened in Yishun in 1990.
As of today, the company manages 55 coffee shops and 3 industrial canteens all over Singapore and comprises over 400 stalls. The company will lease the coffee shops from HDB or owners and will in turn subletting to other tenants i.e. the stall owners.
Kimly also owns Tonkatsu specialty restaurant – Tonkichi that serve good Japanese food at good prices. The company also serves Japanese and French style cakes and pastries – Rive Gauche.
Important note: Recently, the company got into trouble as 2 of its board members (Executive Chairman and Executive Director) get arrested by CAD and released on bail due to its IPO and its acquisition of drinks maker Asian Story Corp (ASC).
#3 Koufu (SGX: VL6)
Koufu Group Ltd is one of the most established and largest operators and managers of food courts and coffee shops in Singapore, with diversified revenue streams from outlet and mall management and F&B retail business segments.
Their Food Courts brand include Koufu, Cookhouse and Rasapura etc. Self operated F&B stalls include 1983 Coffee & Toasts, Hungry Jack and Fu Ji etc. They also run Quick Service Restaurants or Kiosks e.g. R&B Tea.
Koufu went IPO on 18 July 2018 at 63 cents. The IPO comprises a placement tranche of 90.7 million shares and a public offer of 6.3 million shares.
Putting Everything Together
Valuation Analysis
| Â | Breaktalk | Kimly Ltd | Koufu Group Ltd |
| Price to Earning Ratio | 32.26 | 12.93 | 16.08 |
| Price to Book Ratio | 3.666 | 3.19 | 4.31 |
| Market Capitalization (S$) | 490.051M | 282.95M | 394.166M |
Among the 3 companies, Kimly Ltd has the smallest market capitalization with the cheapest valuation.
However, Kimly’s share price upside might be capped by the on-going investigation on its 2 directors. Breadtalk has the highest P/E multiples at 32.26 which signifies the market has high expectations for its overseas expansion plan.
Financial Strength Analysis
| Â | Breaktalk | Kimly | Koufu |
| Quick Ratio | 0.9 | 3.05 | 1.98 |
| Current Ratio | 0.93 | 3.09 | 2 |
| LT Debt to Equity | 73.19% | 0.04% | 4.77% |
| Total Debt to Equity | 143.44% | 0.07% | 5.22% |
Kimly Ltd has the strongest balance sheet among the 3 companies and close to zero debt. On the other end of the scale, we have Breadtalk with 143% Total debt to equity and a current ratio less than 1.
That said, we don’t foresee any significant risks to the company day to day operations due to its high operating cash flow. They have taken up much debt to fuel their overseas growth plans.
Profitability Analysis
| Â | Breaktalk | Kimly | Koufu |
| Gross Margin | 56.2% | 19.85% | 67.85% |
| Operating Margin | 5.12% | 11.89% | 12.98% |
| Net Profit Margin | 3.18% | 10.46% | 10.93% |
With regards to profitability, Koufu Group Ltd has the highest Net Profit Margin at 10.93%, slightly higher than Kimly but much higher than Breadtalk.
Breadtalk has a razor thin profit margin of only 3%, mainly due to the low profit margins for its bakery segment.
Conclusion
To sum up, if I will to pick 1 out of the 3 companies, it will be Koufu Group Ltd. Reasons being that:
- BreadTalk has been expanding overseas for some time now but facing difficulties in churning out profits (especially in China). And its valuation is sky high right now as opposed to its growth.
- Although one may find Kimly Ltd appealing for its cheap valuations and solid balance sheet, the CAD investigation may throw everything into a vortex. And the way i see it, there is limited upside for Kimly’s business model without the AsianStory as a new growth venture.
- Koufu Group has one of the most eye-popping 67% gross margins i have seen. Low Debt, Reasonable Valuation + upcoming integrated facility may push its costs even lower.
However to end off, investors should be aware of the strong headwinds F&B companies are facing going forward. In this Bloomberg article, Labor-intensive service industries (e.g. food and beverage) has the most to lose out since the reduction in foreign workers’ quota will mean higher costs for the companies.
Looking for other stocks with strong economic moats and compelling financials? Simply click here to download it right now!
Disclaimer: The above article and stocks mentioned above are for information purposes only and does not constitute an offer, a solicitation, a recommendation or investment advice to enter or conclude any transactions.
