Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2017-05-16: Still Awaiting Catalysts

Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2017-05-16: Still Awaiting Catalysts JUMBO GROUP LIMITED 42R.SI

Jumbo Group Ltd (JUMBO SP) - Still Awaiting Catalysts


No catalysts for now until new outlets catch up 

  • Maintain HOLD following 2Q17 results that missed expectations, which was mainly due to a lack of new outlets, higher franchise development costs, as well as JPOT’s underperformance. 
  • FY17/18/19 forecasts reduced by 13%/6%/3% on new outlet timing changes and likely Beijing start-up losses, while margins are trimmed on poorer results of JPOT.
  • Overseas expansion success to be the next catalyst, but we would wait for more proof before turning more optimistic. We note that Jumbo has a strong track record overseas. 
  • DCF-TP SGD0.66 (WACC 8.3%, LTG 3%).


2Q17 below. Singapore down, China up.

  • 2Q17 revenue/NP were flat YoY, below expectations. Results reflected a lack of contributions from new restaurants (still 3 seafood outlets in Shanghai/5 in Singapore) and higher franchise business development efforts which has not yet started to contribute. 
  • Seafood was flat on stricter seating restrictions at the East Coast outlet, while JPOT was down, which management intends to fix. Singapore fell 5% YoY but China rose 28% YoY, propping up gross margin at c.64%, up from 61% a year ago.


Forecasts changed on revised outlet schedule 

  • We cut FY17/18/19 forecasts by 13%/6%/3% on new outlet timing changes and likely start-up losses in Beijing. Singapore CBD outlet is pushed from 4Q17 to 2Q18 while Shanghai 4th outlet is pushed from 3Q17 to 4Q17. 
  • We also reduce gross margin assumption from 65% to 64% on weakness in non-seafood biz (eg JPOT). 
  • For the Beijing JV, we have built in losses from 3Q17, with profits only in FY19, as well as franchise fees for one Vietnam outlet each in the next three years.


Maintain HOLD, awaiting more overseas traction 

  • Jumbo’s overseas expansion should be the next catalyst, though we would wait for more proof of success. As in the case of Raffles City Shanghai, Jumbo may have to test and calibrate its menu to suit local tastes in Beijing and Vietnam before it finds success. 
  • We note however that Jumbo has established a good track record in Shanghai and we are reasonably confident they can pull it off. 
  • Lastly, there may be catalysts from the introduction of new dining concepts or tweaking of underperforming businesses such as JPOT.


Swing Factors


Upside

  • Better-than-expected Singapore and China sales, especially from new outlets.
  • Lower-than-expected food and staff costs that could lead to better-than-expected margins.
  • Expectations of higher dividends or articulation of a dividend policy.

Downside

  • Any changes in China’s food safety laws that could affect China’s import of mud crabs.
  • Shortage of critical ingredients for its signature dishes: crabs, other seafood.
  • Epidemics or health scares that can damage its reputation or cuisine eg mass food poisoning, salmonella.




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-05-16
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.66 Down 0.750



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