Yesterday (20 May 2021), I have added another company to my long-term investment portfolio in Koufu Limited (SGX:VL6) – you can check out a list of all the companies I have invested in here.
This company should be one where all of us are familiar with – particularly in its namesake brand of foodcourt outlets scattered across the country. In April last year, I have also done an in-depth review of the company, and you can check out the post here (the contents within are still relevant today, hence I did not re-write it.)
One of the reasons why I have made this investment decision is because I wanted some form of diversification in my long-term investment portfolio – before the addition, a huge bulk of it comprised of REITs (approximately 67.9%), with the remaining 32.1% comprised of the 3 Singapore banks (in DBS, UOB, and OCBC), as well as Hong Leong Finance.
Now, you may be wondering – of all the companies listed on the Singapore Exchange, why did I choose Koufu Limited. The reason is because I feel that the foodcourt business is a defensive one – economic crisis or not, most Singaporeans (myself included) who dine outside settle most of their meals in foodcourts. Also, another business which Koufu is in – the bubble tea business, is also a pretty defensive one in my opinion (just look at the snaking queues forming outside many bubble tea shops everyday, and also how many bubble tea lovers rushed to buy their ‘last cup’ of bubble tea just before the 2 month ‘circuit breaker’ kicked in last year.)
Looking at its financial performance for the year 2020, with all the safe distancing measures in place (particularly the 2 month ‘circuit breaker’, as well as Phase 1 of the safe re-opening), where only takeaways are allowed, it is of no surprise that the company’s businesses took a big hit (as many people opted to cook at home during that period, since they were working from home at the same time.) As such, its revenue fell by 19.0% (from S$237.5m in FY2019 to S$192.4m in FY2020), while its net profit attributable to shareholders plummeted 64.3% (from S$27.7m in FY2019 to a low of just S$9.9m in FY2020.) Due to the company taking a huge hit in its financial performance, its dividend payout for the financial year was also negatively impacted, where it fell by 32.0% from 2.5 cents/share in FY2019 to 1.2 cents/share in FY2020 (in case you’re wondering, its payout of 1.2 cents/share represented a payout ratio of about 67%.)
Koufu released its first quarter business updates for the financial year 2021 ended 31 March 2021 yesterday (you can read the update in full here) – no financial figures were shared, and in terms of the management’s outlook for the remaining quarters of the financial year ahead, they were of the opinion that it will continue to be impacted and not recover to pre-Covid levels. However, looking on the brighter side of things, I note that its revenue for the first 4 months of FY2021 have shown further improvements compared to the first 4 months of FY2020. Having said that, they also expected the company’s operating profits starting from May 2021 to once again be negatively impacted due to the Phase 2 (Heightened Alert) imposed by the Singapore government between 08 May and 13 June 2021, where dining-in is no longer allowed, along with other re-tightening of safe distancing measures.
Looking ahead, I am of the opinion that if the current Phase 2 (Heightened Alert) were to last for just one month, and dining-in is allowed once again, then its revenue and net profit may not take too much of a hit. However, if this period is extended (in my opinion looking at the number of community cases, it is likely to be the case), and depending on how many months will it be before dining-in is allowed once again, its results could end up to be about the same as what was reported in FY2020 (if that’s the case, I would consider it to be a satisfactory one, taking into consideration the disruption to the company’s businesses as a result of the re-tightening of the safe distancing measures.) As to when the company’s top- and bottom-line may return to pre-pandemic levels, my opinion is that we will have to wait for the time when people could once again return to their workplaces – we might see some improvements in the company’s results in FY2022 (provided if there are no restrictions on dining in being re-implemented throughout the year), but for a full return of its results to pre-pandemic levels, we may have to wait till at least FY2023.
Finally, no doubt the situation in Singapore does not look too good at the moment (and possibly in the next month or two ahead), but I am confident that traffic to the company’s foodcourts will resume as long as the Singapore government gives a ‘green light’ to dining in again, and that the food court businesses will continue to remain strong in the years to come – hence my decision to invest in the company.
With that, I have come to the end of my share about my investment decisions on Koufu Limited. Hope you find the information above useful and do take good care of yourself by staying home as much as possible during this period.
Disclaimer: At the time of writing, I am a shareholder of Koufu Limited.
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