JUMBO GROUP LIMITED
42R.SI
JUMBO GROUP (JUMBO SP) - No Surprises From Seasonally Weak 1Q; Expect A Pick-up In 2QFY16
RESULTS
• Earnings broadly in line with expectations.
- For 1QFY16, Jumbo recorded a net profit of about S$2.0m (-4.9% qoq), which was roughly in line with our expectations. This was due to IPO expenses (S$0.7m) and pre-operating expenses for the third Jumbo Seafood outlet at IFC Shanghai.
- Excluding the IPO expenses, NPAT would have been approximately S$2.7m, representing an increase of 25.5% qoq.
• Revenue higher with China outlets kicking in.
- Jumbo recorded revenue of S$30.9m, which was up 7.6% qoq from S$28.7m mainly due to full revenue contribution from the second outlet in Shanghai and a 3% increase in same-store sales growth (SSSG) in Singapore stores.
• Higher up-front labour and operating lease expenses due to second and third outlets in Shanghai.
- Employee benefits and operating lease expenses increased 10.3% and 19% respectively due to an increase in the number of employees in Shanghai. In preparation for the opening of its third outlet, Jumbo hired new employees two months in advance for training purposes.
- Operating lease expenses went up due to pre-payment of new leases for the second and third outlets in Shanghai while there was an approximate 5% increase in rental rates upon renewal for a few Singapore outlets.
OUR VIEW
• Expect pick-up in 2Q16.
- Historically, 1Q and 3Q (of its financial year to September) have been seasonally weak quarters due to the school holiday period.
- Using FY15 as a guide, 2QFY15 net profit accounted for over 35% of profit for the year while 1QFY15 accounted for 16% of net profit for the year.
- Based on the adjusted net profit of S$2.7m, this represents 17% of our full-year FY16 number. It takes at least six months before new outlets start contributing positively to group profit.
• Positive outlook; maintain net profit targets.
- Jumbo’s near-term focus will be integrating and streamlining operations in the second and third outlets in Shanghai before they begin exploring other opportunities in Singapore and possibly the opening of a fourth outlet in Shanghai sometime in 4QFY16 or 1QFY17.
• Potential expansion of Riverside Walk outlet.
- Given the high costs to open a new outlet, we believe that there is possibility that the group will expand the Riverside outlet. During peak periods, our channel checks indicate long queues and a packed restaurant as early as 6pm even on rainy days. This could be management’s preferred choice of expansion as it will not incur as much capex as a new outlet.
VALUATION
• Maintain BUY with a DCF-based target price of S$0.55.
- Jumbo remains a compelling F&B stock with strong free cash flow generating capabilities and a 1Q16 net cash position of S$0.074 per share.
Nicholas Leow
UOB Kay Hian
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Andrew Chow CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2016-02-10
UOB Kay Hian
SGX Stock
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