Jumbo Group Ltd - Maybank Kim Eng 2016-05-16: Virtuous upgrade cycle started

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JUMBO GROUP LIMITED 42R.SI 

Jumbo Group Ltd (JUMBO SP) - Virtuous upgrade cycle started 

Maintain BUY. Forecasts and TP raised 2Q16 beat our expectations. 

• We raise FY16E EPS by 6% and FY17E-18E by 10%. 
• Blended PE/DCF TP raised 8% to SGD0.62 from SGD0.58. 
• As expected, China was the biggest driver, with revenue +94% and all three Shanghai outlets operating profitably. However, Singapore revenue also rose a strong 12% on the back of more Chinese tourist arrivals. 
• Maintain BUY. 
• We believe Jumbo has embarked on a virtuous cycle of EPS upgrades that can last for years to come. 

2Q beat on strength in China and Singapore 

• 2Q16 topped our estimate by 6% as China revenue jumped 94% YoY to 14% of 2Q16 revenue, up from 8% a year ago. 
• All three China Jumbo outlets were profitable even though two of them had operated for less than a year. In fact, the latest IFC Mall outlet was already in the black even though it opened only in Jan 2016. 
• Singapore revenue also jumped 12% YoY as the two Jumbo outlets along the river as well as the Dempsey outlet did very well on the back of higher PRC tourist arrivals. 

Raise forecast by 6%, TP upped by 8% 

• We raise FY16E by 6% on account of the 2Q beat and FY17-18E by a greater 10% as we expect Jumbo to capture greater operating leverage from the newer China outlets after they have operated a full year. 
• As a result, our blended DCF/PE TP is raised by 8% to SGD0.62 from SGD0.58. 

Virtuous cycle of EPS upgrades has started 

• We think there is further upside to Jumbo’s growth capacity. In our view, 2Q16 is only the start of a virtuous EPS upgrade cycle that could extend for years. 
• The opening of more outlets in China in future is certainly one catalyst. But there is more upside even in Singapore, where we believe the main limit to growth has been seating capacity. 
• It has come to our attention that Jumbo will be taking over Chen Fu Ji Fried Rice’s space above its Riverside Point outlet. By end-FY16, it will have expanded seating capacity there by 50%, boosting revenue without having to spend on advertising or promotions. This can also be done with other outlets.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-16

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.62 Up 0.58