With Singapore's latest implementation of Phase 2 (heightened alert) on May 16, bringing tighter social distancing measures, including the prohibition of dining-in at all F&B outlets, footfall at Koufu's food courts have been negatively impacted.

With that, CGS-CIMB is downgrading its call on Koufu to "hold' from "add" with a lower target price of 71 cents from 94 cents previously.

Lead analyst Cezzane See notes that although the government has mentioned that measures are likely to ease going forward, but she believes that it is highly unlikely for distancing measures to return to what they were in 1Q2021 (up to eight pax allowed for gatherings) so soon.

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"We expect 1HFY2021 revenue to rise 5% y-o-y with weaker 2QFY2021, as a significant proportion of Koufu’s current outlets are located in malls (about 43%), with a smaller proportion located in schools (about 9%) and offices
(about 4%). As Singapore shifts towards a hybrid work-from-home model, we expect footfall recovery at these locations to remain an overhang for FY2021/2022 earnings," says See.

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In addition to slower-than-expected footfall recovery, border reopening also remains a near-term uncertainty. Tourist arrivals in Singapore and Macau, while gradually improving, still remain weak at 2% and 23% of pre-Covid levels respectively.

Commencement of the new Integrated Facility has also been delayed to 3QFY2021, compared to 2QFY2021 as previously guided, due to disruptions arising from the pandemic, postponing potential gross profit margin expansion.

"That said, we think that the impact should be slightly offset by growing contribution from Deli Asia as well as enhanced grants offered from the Job Support Scheme (JSS)," adds See.

Despite headwinds due to the pandemic, Koufu has still continued extending its outreach across the island via the opening of one new food court (located at Sun Plaza), two new R&B Tea outlets (located at Fusionopolis and Sun Plaza), and three new Dough Culture outlets (located at Singpost Centre, Sun Plaza, and Oasis Terrace).

Going forward, the group has already secured three new food court locations (located at Marina Square, NTU, and Outram Community Hospital) to be opened in 2QFY2021 and 3QFY2021, and one new Grove outlet location (located at Northshore Plaza) to be opened in 4QFY2021. The group will also be opening a coffee shop within its Integrated Facility in 3QFY2021, upon the commencement of its operations.

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Nonetheless, the analyst still likes Koufu for its strong balance sheet, giving it sufficient dry powder for working capital requirements as well as potential M&A opportunities as the economy recovers.

"The worst is possibly over, but recovery is expected to be gradual, in our view," says See, as she advises to wait for further signs of recovery in footfall.

As at 3.15pm, shares in Koufu are trading at 66 cents, 3.35 times FY2021 book with a dividend yield of 2.23%.

Photo: Albert Chua/ The Edge Singapore