Jumbo Group - Maybank Kim Eng 2016-01-12: Early Hong Bao from China?

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JUMBO GROUP LIMITED 42R.SI 

Jumbo Group Ltd (JUMBO SP) - Early Hong Bao from China? 

Faster turnaround in China suggested 

• Nuggets of information gleaned from our recent meeting suggest a faster turnaround for its new China outlets. 
• Raffles City Shanghai’s start-up costs could be lower than expected and IFC Mall could break even sooner, as it will open in time to catch CNY business. 
• 1QFY09/16 should provide insights and potentially, earnings upside. 
• Our BUY call will be reinforced if current forecasts prove too conservative. We leave them unchanged for now. 
• BUY with a blended 25x P/E and DCF TP (WACC 9.2%) of SGD0.58. 

Start-up costs could be lower than expected 

• Management says the cost of starting up its first outlet already includes staff costs for subsequent outlets and that only 50% of the second outlet’s staff are new hires; the other half was hired earlier. This suggests that the path to profitability could be shorter than expected for its newer outlets, as start-up costs for additional outlets should be lower than the first. 

Chinese contributions could equal Singapore’s, with better margins 

• In China, Jumbo is tapping growing Chinese wealth and hunger for new dining concepts. It has three outlets in Shanghai and believes the market can easily support 10. 
• Assuming SGD10m revenue per outlet pa, China could eventually be a SGD100m market for Jumbo, equalling Singapore’s current contribution, with better margins to boot. 

Room for Singapore to grow faster 

• Jumbo may introduce an innovative lunch menu featuring its signature dishes to increase daytime business. Right now, most of its business is at night. It hopes that its new menu would attract more corporate clients during the day. 
• In addition, we believe there is an opportunity to add space at its Riverside outlet by taking over adjacent space. We estimate that 50% more space at this outlet could boost FY17E revenue by 3%.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-12

Maybank Kim Eng SGX Stock Analyst Report BUY Initiate BUY 0.58 Same 0.58