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Koufu’s Initial Public Offering: A Bull’s View

Most Singaporeans would probably have visited one of Koufu’s food courts or hawker centres before. The company manages 47 food courts and 13 coffee shops across the island. Recently, Koufu filed to go public to raise funds to build a new integrated facility for its operations. In light of the initial public offering (IPO), here are some things to like about Koufu.

Splendid track record of growth

It was just 15 years ago when the husband and wife team, Mr Pang and Ms Ng, founded Koufu as a small coffee shop and coffee stall operator. Since then, the ambitious founders have expanded their business into nothing short of a food empire, managing a network of 47 food courts, 13 coffee shops and operating 81 food stalls.

Their ambitions do not stop there. More recently, the company has grown its revenue by 9.1% between 2015 and 2017, from S$198.7 million to S$216.7 million. Its bottom line has also improved during that time, growing by 30% to S$26.8 million from S$20.6 million.

With the proceeds from the IPO, Koufu is looking to build a new integrated facility that includes a central kitchen, R&D centre and dishwashing services. It will hopefully improve inventory control and decrease overheads, leading to better cost-efficiencies. Koufu is also hoping to roll out online food delivery and to use some of the proceeds for expansion.

Robust balance sheet

According to its IPO prospectus, as of 2017, Koufu only had S$1.75 million in loans and borrowings. On the other hand, the company had around S$53 million in cash, which can be used for acquisitions, expansions and working capital.

Furthermore, Koufu’s business is cashflow-generative with around S$50 million of cash generated from operations in 2017. The company has also been prudent in ensuring that non-performing operations are closed to streamline its operations and profitability. For instance, in 2017, the group took the initiative to close two underperforming food courts, reducing its overall number of food courts. However, despite the smaller number of food courts, the group still posted revenue gains during the year.

Competitive advantage in the industry

With their experience and expertise in the industry, CEO Mr Pang and Mdm Ng are in a good position to bring the company forward. The duo has overseen the company’s growth from a small-time coffee shop operator to one of the largest food court operators in Singapore.

Through the years, they have also created a quality brand and relationship with stall operators and mall owners, giving them an edge over their competitors. Mr Pang said in a recent interview with The Straits Times that food courts have become the anchor tenants in shopping malls in Singapore. This means that mall managers are also looking for innovative designs, reputable food stalls and concepts to attract footfall. With its track record and brand name, Koufu can meet the impending needs of these shopping malls.

Reasonable valuation

The IPO price of the company is slated to be 63 Singapore cents per share. This will give Koufu an initial market cap of S$349.8 million, or around 13.1 times is 2017 earnings. At this multiple, it trades at a more attractive valuation than other F&B companies such as BreadTalk Group Limited (SGX: CTN), JUMBO Group Ltd (SGX: 42R) and Neo Group Ltd (SGX: 5UJ), which have a price-to-earnings ratio of 55, 29 and 22 respectively.

Koufu’s valuation is also reasonable, considering the company has relatively little debt on its books, reasonable growth prospects and the IPO injection of cash that the company can use to expand its business.

The Foolish bottom line

There are certainly many things to like about Koufu’s recent listing. Besides its remarkable growth story since it was founded in 2002, the company has a robust balance sheet, strong cash flows and a capable and experienced management team. The building of the new integrated facility might also streamline some of its operations and further improve cost-efficiencies. With its shares priced at just 13 times 2017 earnings, Koufu is certainly a stock investors can consider investing in.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia doesn’t own shares in any companies mentioned.