Jumbo Group Ltd - Maybank Kim Eng 2016-05-05: Checking in on China crabs

Jumbo Group Ltd - Maybank Kim Eng 2016-05-05: Checking in on China crabs JUMBO GROUP LIMITED 42R.SI 

Jumbo Group Ltd (JUMBO SP) - Checking in on China crabs 


BUY maintained post-IFC outlet visit 

  • We visited Jumbo’s newest restaurant at the IFC Mall in Shanghai last week and came away encouraged by what we observed. 
  • We hold on to our optimism that the IFC outlet could help China operations to turn around to profitability soon, perhaps as soon as 2Q FY9/16 which will be reported next week. 
  • We expect a strong 15-16% growth in the top and bottomline to SGD38m and SGD5.5m respectively. 
  • Maintain BUY, TP SGD0.58 based on blended PE/DCF valuations. 

Almost full house even on a pre-break Friday 

  • Jumbo’s newest IFC Mall restaurant in Shanghai is located near the Ritz Carlton and HSBC headquarters. 
  • Operating at almost full house even on a Friday night, we were there for two hours and table turnover was rapid. Queries of staff revealed that they considered occupancy on the night we were there to actually be quieter than usual, given that it was ahead of the three-day Labour day weekend. But it still looked busy to us. 

Per pax spend has exceeded CNY400 

  • Further according to restaurant staff, per pax spend for the IFC outlet has exceeded CNY400 just 3-4 months after opening, higher than the CNY368 we assumed for FY16. 
  • Set meals, especially the CNY438 Set C and deshelled single-claw crab dishes, have been extremely popular among corporate diners, the restaurant’s main target market. This is in line with the optimism we expressed for the IFC outlet in our previous note on Jumbo. 

Chinese undeterred by premium prices 

  • Our order of a 1.2kg mud crab cost CNY720 or SGD125 per kg. This is 60% higher than what it would cost in Singapore, and yet we observed crab orders on almost every table. 
  • Even after transport costs, as the crabs are imported from Southeast Asia, PRC margins on this popular dish could be better than local margins, in our view. 
  • In addition, there was more variety on Jumbo’s China menus, especially crabs, suggesting that PRC diners are still a long way from being jaded.


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/ 2016-05-05
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.58 Same 0.58


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