After dropping out of school at 13 years old, Mr Pang started work as a kitchen helper in the 1960s to share his family’s financial burden. For 5 years he sold fruit at Sungei Road’s famed Thieves Market and later ran a Nasi Lemak stall at a coffee shop. He then progressed from running food stalls to operating and managing coffee shops and the food court business.
In 2002, Pang founded Koufu with the aim of preserving the unique Singaporean coffee shop culture. Today, Koufu is one of the most established and largest food courts operators and managers of food courts and coffee shops in Singapore.
Here’s a quick glance into the details of Koufu’s IPO.
You can find the prospectus here.
1. Koufu Profile
The company comprises 2 main business segments:
Outlet & Mall Management
The company operates 48 food courts, 14 coffee shops, 1 hawker centre and 1 commercial mall under the outlet and mall management segment. Some of its brands under this segment include Koufu, Cook House, The Kitchen, Rasapura and so on. Among them, Koufu has the largest presence in Singapore with over 30 existing outlets.
The company is consistently sourcing for prospective stall operators to add to their existing pool of food court and coffee shop stall operators to provide an ideal mix of F&B menu offerings. There have been 29 stall operators sticking with Koufu for at least 5 years, operating more than 130 F&B stalls across their network.
Besides that, the company manages a shopping mall named Punggol Plaza.
In FY2017, this segment contributed S$105.4 million in revenue to the company which is equivalent to 48.6% of the company’s total revenue.
F&B Retail
The company also operates 83 F&B stalls, 11 quick-service restaurants, 6 F&B Kiosks and 3 full-service restaurants. Under this segment, Koufu Group owns multiple brands such as Elemen, Grove 1983 Coffee & Taste and R&B Tea.
Koufu Group has its self-operated F&B stalls and quick-service restaurants at its own food court and coffee shop. Their business is generally resilient through economic cycles as they focus on competitively-priced dining options and is supported by local food consumption habits in Singapore. According to the prospectus, their F&B stalls have achieved an average occupancy rate of more than 93% in the last 3 years.
In FY2017, F&B retail has contributed S$111.3 million in revenue, around 51.4% of the company’s total revenue.
2. IPO Details
The IPO will close at 12 noon on 16 July (Mon) and will start trading on 18 July (Wed).
The IPO comprises a placement tranche of 90.7 million shares and a public offer of 6.3 million shares with S$0.63 a piece. Currently, the founder of Koufu, Pang Lim and his wife owned 45.8 million shares.
Additionally, it will issue another 21 million shares at the same price to three cornerstone investors with no subject to any lock-up restrictions. The cornerstone investors are:
- One Hill Investments
- Qilin Asset Management Pte. Ltd.
- Maxi-Harvest Group.
The company does not have a fixed dividend policy, its board intends to recommend dividends of at least 50 per cent of net profit after tax generated in 2018 and 2019. This will exclude an interim dividend of S$12.5 million that has already been paid by Koufu this year.
3. Use of Proceeds
Upon listing, the company will raise gross proceeds of S$74.3 million, of which S$43 million will go to the company and S$2.5 million for issue expenses. The founder will pocket the rest of the proceeds.
Koufu plans to use the remaining proceeds mainly for:
- Capital expenditure for an integrated facility: S$30 million
- Refurbishment and renovation of F&B outlets: S$8 million
- Expansion of business: S$5 million
- Issue expenses: S$2.5 million
4. Financial Highlights
Revenue for the company has been increasing over the past 3 years. The same can be said for its net profit.
The revenue has increased from S$198.7 million in 2015 to S$216.7 million in 2017 at CAGR of 4.43%. Meanwhile, its net profit increased from S$20.6 million in 2015 to S$26.8 million at CAGR of 14%.
The growth rate of the net profit was higher due to improvement in its gross margin and increasing net finance income.
With a total debt of S$1.8 million and a cash and cash equivalence of S$53 million, the company is sitting on a net cash of S$51.2 million.
5. Growth Prospects
In the future, Koufu plans to expand and strengthen their presence with new F&B outlets in Singapore and overseas. The company will be setting up new F&B Outlets in strategic locations, focusing on hospitals, commercial malls, tertiary educational institutions and new housing estates.
With the proceeds from IPO, Koufu will build an integrated facility to house a larger central kitchen located at Woodlands Avenue 12. The building also includes a centralised dishwashing facility, a training centre and an R&D centre.
Expected to commence operations in year 2020, it will help Koufu to enhance productivity and operational efficiency in producing larger food quantities while maintaining a high standard of food quality and consistency.
Besides that, Koufu is eager to expand its provision of online food ordering and delivery services to most of their F&B outlets by 2019.
Conclusion
With an IPO price of S$0.63 and adjusted earnings per share of 4.83 cents, this translates to a PE of 13 times. In addition, assuming the dividend payout of 50%, it gives at least a 3.8% yield based on IPO price.
Overall, I am neutral in the short term and over the long run. As the cornerstone investors are not subject to any lock-up restrictions in respect of their shareholdings, this may result in a huge sell pressure from the funds.
Besides, the Singapore market may be too saturated for any F&B operator due to the ever-changing tastes of Singaporeans. In order for Koufu to grow aggressively, they might expand their business overseas through acquisitions of joint ventures. However, it may be hard to do so as the consumer’s taste and culture are different in each country.
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