Jumbo Group - DBS Research 2016-06-01: Invading China with Chilli Crabs

JUMBO GROUP LIMITED 42R.SI

Jumbo Group - Invading China with Chilli Crabs

Growth underpinned by new outlets, M&A and higher productivity from existing operations
Milking its success in Shanghai, the most cosmopolitan Chinese city
Project FY15-18F earnings growth CAGR of 27%, led by new stores and growth in China business
Initiate with BUY, TP S$0.68 based on 23x FY17F PE, 0.9x PEG.

Jumbo is on track to expand quickly both in China and Singapore, with growth primarily driven by new store openings. These include upcoming expansion of Riverside Jumbo Seafood outlet and new locations in central area for Jumbo Seafood and Bak Kut Teh outlets.
In China, there are plans for more outlets to open in Shanghai via Jumbo Seafood and Bak Kut Teh stores.
Expansion plans also include franchise opportunities, which we believe will add to growth if franchise arrangements are established.
Longer-term growth opportunities also include M&A with other F&B foodservice chains regionally.

We project earnings growth CAGR of > 25% on the back of more store openings.
Revenue increase of 16% CAGR from FY15-18F will be contributed by both new and existing stores.
We project operating margins to improve on better economies of scale and improving start-up situation in China from FY15-18F.

The stock currently trades at 18.1x FY17F PE, below regional peer average of 23x.
Jumbo is growing quickly in Singapore and China, has close to 30% ROE, relatively higher margin than peers, generates decent cash flows, is in net cash, and will reel in stronger growth if it secures a master franchisee for its brands in China outside Shanghai. More so if it succeeds in China.
Due to its strong growth profile, we peg our valuation of Jumbo at 23x FY17F PE, in line with peer average and at a reasonable 0.9x PEG.
Delivery of growth expectations could potentially re-rate the stock.
Initiate with BUY call for 27% upside.

Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-06-01

DBS Vickers SGX Stock Analyst Report BUY Initiate BUY 0.68 Same 0.68