SINGAPORE (Dec 11): SAC Capital is initiating a “buy” recommendation on food court and coffeeshop manager Koufu with a target price of 87 cents.

In a Wednesday report, lead analyst Chow Zheng Jie says, “We like the strong ROE [return of equity], cash generative and defensive business model. And we expect more new outlets, new facility and overseas expansion will be the impetus for earnings growth.”

Koufu has guided that its new integrated facility at Woodlands will be operational in 1H20. This facility will consolidate and expand its central kitchen capacity, enabling central procurement, food preparation, processing and distribution to the eateries.

The construction of the facility is worth about $40 million and was largely funded by IPO proceeds.

Meanwhile, Chow reckons that about 30% of the facility’s space could be leased out to third party food processors.

With the new facility, Koufu also has the potential to extend its business into food catering to institutions and corporate customers.

On the other hand, the group boasts strong net margins of 12% and a ROE of 29%, even with net cash of $93.5 million accounting for 97% of net assets.

In its latest 9M19 results, earnings increased by 24.6% y-o-y to $21.2 million, mainly due to the re-opening of the group’s Rasapura food court at Marina Bay Sands and high operating leverage. Revenue for the period was 6.2% higher y-o-y at $177.2 million.

“Network expansion will translate into greater growth at the bottomline,” says Chow.

As at 11.50am, shares in Koufu are trading at 76 cents or 4.0 times FY19 book.