Koufu IPO raised 415.9m. What does this mean to investors?

Koufu IPO have been the talk of the town recently. In your journey with money or journey to food court (probably Koufu), you probably would have talked about this IPO. Is this a value stock?

Value Investing Singapore

“Can this company feed me forever?”

What happen?

On Wednesday (18 July 2018) Koufu Group Limited was listed on the mainboard in Singapore. Shares were sold for SGD 0.63 per share, giving the company an initial market cap of S$349.8 million. Public offering was about 17 times oversubscribed. There seemed to be many interest in the company.


Why are people interested in Koufu?

My guess is as good as anyone’s guess. For me, I feel that Koufu is a brand that everyone is familiar with. Most Singaporeans would have seen the queues at Koufu during lunch time and believe that this company is making a lot of money. The Group manages 48 food courts, 1 hawker centre, 14 coffee shops, 1 commercial mall, 83 F&B stalls primarily in Singapore but has also established a small presence in Macau. As you can see, Koufu has presence over the whole island of Singapore.

Value Investing Singapore

(Photo source: http://koufu.listedcompany.com/misc/ipo2018.pdf)

Is Koufu really making money?

Koufu IPO Revenue Value Investing Singapore

(Photo source: http://koufu.listedcompany.com/misc/ipo2018.pdf)

As you can see in the financial highlights, indeed revenue has been increase for the past 3 years. Profits has also been increasing. I’m not too particularly concerned about cashflow as the food will have to be paid for when you buy the food for F&B retail and paid on a monthly basis for outlet and mall management.

Net margins for this company is around 12% (source: sgx koufu). Majority of the cost comes from labor cost and also material cost. It is quite safe to say that this company is making money.


How is Koufu going to use the IPO proceeds?

Through the sale of 51.2 million new shares, it is going to raise proceeds of SGD$70.5 million. This is where the money will flow to. SGD$43 million will go to the company and SGD$2.5 million for issue expenses. The founder will pocket the rest of the proceeds.

Koufu plans to use the remaining proceeds mainly for:

  1. Capital expenditure for an integrated facility: SGD$30 million
  2. Refurbishment and renovation of F&B outlets: SGD$8 million
  3. Expansion of business: SGD$5 million
  4. Issue expenses: SGD$2.5 million

Koufu IPO Uses of Proceeds Value Investing Singapore

(Photo source: http://koufu.listedcompany.com/misc/ipo2018.pdf)


Is the usage of proceeds beneficial to Koufu?

For me, I have some doubts when it comes to how the company is using the proceeds.

  • Shareholders friendly?

The reasons I have the doubt is from the phrase “The founder will pocket the rest of the proceeds”. This means that around 36% of the IPO proceeds will go to the founder. 36% of the IPO proceeds is around SGD$25million. This is SGD$5m shy of building the integrated facilities or 3X the amount that is used for refurbishment of the F&B outlet. I don’t see that they are using the money effectively into the business. It seems like the founder is cashing out from this IPO.

  • Integrated facilities?

The grand idea of the integrated facilities is great. I do agree that it will be beneficial to growth, enhance productivity and operational efficiency. Especially in a saturated industry in Singapore, (think about it, people cannot eat more than one plate of chicken rice per meal right?), it is essential to reduce cost so that the margins will improve. Previously, Neo Group also build an central kitchen in 2012. But they have yet to show significant results. For now, our hope is the SGD$3m is worth it in future.


Is it all rosy for Koufu?

  • Founders cashing out?

Koufu IPO Uses of Dividends Value Investing Singapore

In FY2017, there was a huge dividend payout. Is it a sign the founders are already cashing out even before IPO?

  • Growth Prospect?

In Singapore, there is already an abundance of food courts. Can Koufu really expand more? Expansion overseas of Singapore companies have met many headwinds over the years. Can Koufu do it?


These are some of my thoughts of Koufu.

Disclaimer: We do not hold any shares of Koufu or intending to buy Koufu in the next 72 hours. Please consult your financial adviser or broker if you wish purchase any stocks and shares.

A publication of Value Investing blog Journeywithmoney. Please also follow us on our Facebook Page.

Wishing you the best in your journey with money.


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