Jumbo Group - DBS Research 2016-01-29: Spreading its spice

JUMBO GROUP LIMITED 42R.SI

Jumbo Group - Spreading its spice

Leading F&B operator in Singapore with 14 outlets in Singapore and three in China
Growth underpinned by new outlets, M&A and higher productivity from existing operations
Currently trades at 24x FY16F PE, below Singapore-listed F&B peer average of 27-28x

Jumbo is a leading F&B group in Singapore widely recognised for its signature Chili Crab dish.
It currently operates five restaurant brands through 14 outlets in Singapore and three outlets in Shanghai, China.

Growth is underpinned by new outlets in Shanghai and Singapore. Jumbo targets to open at least four new outlets in Singapore and China over the next two years.
With a population of 25m people in Shanghai vs 5m and five Jumbo Seafood outlets in Singapore, there is available headroom to open more Jumbo Seafood stores in Shanghai.
Singapore’s expansion is more geared towards better operating efficiencies even though there is still room for new outlets to open, albeit slower than in Shanghai.
Centralising the locations of its central kitchen, corporate headquarters and R&D kitchen with new equipment and a larger premise would improve operating efficiencies and productivity from the central kitchens to the restaurants.
Other growth drivers include M&A.

Jumbo currently trades at 23.5x FY16F PE, below Singapore-listed restaurant / QSR / food retailer peer average of 27-29x PE but above regional peers' 21-24x.
Our fair value based on 28x FY16F PE is S$0.53.

Jumbo faces the risks of typical restaurant operators.
Margin and cost dampeners include higher rents, short supply of seafood, and higher labour costs.
Food safety, weak consumer sentiment, non-renewal of leases and weather issues could potentially affect footfall and revenue growth.
With operations in China and JV operations in Japan, Jumbo is also susceptible to SGD-Yuan and SGD-Yen FX.

Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-01-29

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