There goes another company going private. On 29 Dec 2021, the founding shareholders have proposed to privatise Koufu at S$0.77 per share in cash.
The company now joins a list of companies that have gone private or are in the process of doing so in recent months, including property developer SingHaiyi Group, Property and hospitality group Roxy-Pacific, and Singapore Press Holdings.
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Koufu’s Business
Koufu is one of Singapore’s largest food court and coffee shop operators and managers. As of 30 June 2021, the Group’s outlets and mall management operations in Singapore included 52 food courts, 17 coffee shops, and a commercial mall, while the F&B retail division included 74 self-operated F&B stalls, 43 F&B kiosks, 6 QSRs, 4 full-service restaurants, and 57 Delisnacks branded F&B stalls.
In addition, the company has operations in Macau, Indonesia, and the Philippines. However, this represents only a tiny portion of total revenues.
The impact of Covid 19
Koufu is was hit hard by the current pandamic. While Singapore and, in some sense Macau, has gradually opened up in 2021, it wasn’t a smooth one. We alternated between Phase 2, Phase 2 (Heightened Alert) and Phase 3, changing the number of dine-in guests from 2 to 5 to 8. We thought things would get better with Singapore’s high immunisation rate, but now we have to deal with the Omicron variant.
Financially, Koufu did relatively well in 2021 as its business operations began to improve gradually, which was aided partially by government grants, rental waivers and rebates handed down by landlords.
The Group’s revenue for the first half of 2021 was S$105.7 million, up 18.8% from S$89.0 million the previous year. In comparison to 1H 2020 revenues, which were adversely impacted during the Circuit Breaker period, the improvement in topline was driven by stronger contributions from both the “outlet and mall management” segment and the “food and beverage retail” segment, bolstered by increased footfall.
As a result, Koufu’s 1H 2021 Net Profit after Tax increased by 291.2% to S$9.9 million, up from S$2.5 million a year ago.
Nonetheless, current revenue and even net profit after tax (NPAT) data imply that Koufu will not be able to rebound to pre-Covid levels in 2021.
With that, here is the deal put forth by Koufu founding shareholders:
Koufu’s Delisting Deal
Mr. Pang Lim, Koufu’s Executive Chairman and Chief Executive, and Mdm. Ng Hoon Tien, Executive Director, have proposed to privatise the firm at S$0.77 per share paid in cash through Dominus Capital, an investment company incorporated on 7 October 2021 for the purpose of this deal.
For this offer, there were four reasons given:
- Opportunity for shareholders to realise their investment at a premium without incurring Brokerage Costs.
- Trading Liquidity is low. On a daily basis, about 0.04% of the total number of issued shares changed hands.
- Greater Management Flexibility. This is paramount in the case of the current pandamic, which requires the Group to remain watchful and adaptive in the event of any new and/or extra restrictions to handle the virus’s spread and mutations.
- Unnecessary compliance expenditures related to listing status can be avoided, given there is no need for capital market access. The costs of complying with listing and other regulatory obligations can be avoided if the company is delisted. Furthermore, since its IPO, the firm has not conducted any equity capital raising exercises.
Is the deal fair?
Koufu was founded in Singapore on 15 November 2017, and it was listed on the Singapore Exchange’s Main Board on 18 July 2018, with an initial public offering price of S$0.63.
The offer price of S$0.77 represents a premium of approximately 15.8% over the last traded price per share on 28 December 2021.
Compared to the volume weighted average price across different time periods up to and including the Last Trading Day, this represents approximate premiums of:
- 14.4% (1-month)
- 13.6 % (3-month)
- 15.1% (6-month)
- 15.3% (12-month)
Hence, recent stockholders will be able to profit from this transaction.
What about investors that have invested before the pandemic?
Except for a brief period in April 2019 and January 2020, Koufu shares have consistently traded below S$0.77 since its IPO. This, plus the fact that the company pays dividends, the worst-case scenario for shareholders is that they will exit at a breakeven price.
To add on, Koufu’s P/E ratio is currently 21.355, while its competitor Kimly’s P/E ratio is 12.265. This indicates that the offer price is reasonable in comparison to the market.
Concluding Thoughts
This transaction, in my opinion, is fairly reasonable. Yes, it appears that the founders stand to gain by selling the company at a depressed price, and some may believe we are nearing the end of the pandemic. However, no one can determine with certainty when the pandemic will end or how much it will affect Koufu.
Is it possible for the company to prosper after it is privatised? Definitely! However, the current offer allows investors to exit with some profit while they still have the opportunity, removing any uncertainty.
That said, this motion requires at least 90% of the vote to pass.
With the couple controlling 77.41% of Koufu’s shares, an additional 12.59% is needed to fulfil the deal’s minimum acceptance condition. This figure should, in my opinion, be pretty easy to achieve, but if you are a shareholder, don’t take the chance and go vote. Otherwise, you can exit your position now since the stock has rallied close to its delisting price after the announcement.
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