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3 Reasons I Think Koufu Group Can Demonstrate Strong Growth

Koufu Group Limited (SGX: VL6) is one of the largest operators and managers of food courts and coffee shops in Singapore and Macau. The group’s business consists of two main divisions — outlet and mall management, and F&B retail. Under the former, Koufu operates food courts, coffee shops, a hawker centre, and a commercial mall. In the latter division, it operates F&B kiosks, quick-service restaurants (QSRs), and full-service restaurants.

Koufu was listed a year ago, in July 2018, and it has reported a good set of earnings in Q1 2019 with revenue rising 4.9% year on year and net profit attributable to shareholders increasing by 12.3% year on year. It also paid its maiden dividend of 1.2 Singapore cents, which translates to a yield of 1.6%.

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The group has many brands (shown below) that cater to different segments of customers, and its chairman, Pang Lim, has stated that growth should come from the expansion of market share in food courts and coffee shops, and from growing the group’s F&B concept stores.

Source: Koufu Group’s Q1 2019 Presentation Slides

Here are three reasons I believe the group can demonstrate strong growth in the coming years.

1. New integrated facility

Koufu is building a new integrated facility to serve as its new corporate headquarters. This facility will have a larger central kitchen, and it will also expand the central procurement, preparation, processing, and distribution functions. The idea is to improve productivity and enhance operational efficiency, which would then flow down to the bottom line in the form of reduced costs and higher profit margins.

The new facility has a gross floor area of 20,000 square metres, and total construction cost is expected to be in the region of S$40 million. Construction begins in Q4 2018 and is expected to be completed by the first half of 2020.

2. Food court expansion plans

Koufu has a strategic plan to expand in Singapore through the opening of new food courts and coffee shops in new housing estates, hospitals, commercial malls, and educational institutions. In Q1 2019, two new food courts were opened in The Woodgrove and Buangkok Square. Two additional food courts are planned for Kallang Way (in 2019) and LeQuest (in 2020), and a new coffee shop will be opened later in 2019 at Compassvale Crescent.

In Macau, Koufu just opened its second food court in April this year at Macau University and is negotiating the lease for a third food court targeted to open in the second half of 2019.

3. Growth in new markets

In early July, Koufu announced a joint venture (effective stake: 32.4%) to expand its Supertea and R&B Tea brands into Indonesia. This will be the group’s maiden entry into Indonesia, and its first outlet is slated to open in Q3 2019. The initial focus will be on Jakarta’s Grade-A malls, and over time, the plan is to expand Koufu’s footprint all over Indonesia.

The group also has overseas expansion plans for R&B Tea for the Philippines, Australia, and Malaysia.

Exciting times ahead

Investors are in for a tasty treat as Koufu executes on its expansion plans. With the three catalysts mentioned above in place, the group should demonstrate strong growth ahead.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.