Jumbo Group - DBS Research 2016-06-08: Spreading its spice

JUMBO GROUP LIMITED 42R.SI

Jumbo Group - Spreading its spice

We like Jumbo Group for its rapid growth in China, close to 30% ROE, relatively higher margin than peers, cash generative business, and strong net cash balance.
We project a 27% earnings CAGR growth from FY15-18F driven by new stores and China ramping up to better profitability.
The group had already posted a stellar 1H16 performance with 14% and 42% y-o-y revenue and earnings growth respectively, driven by China, and is on track to record higher core earnings growth for FY16F.

The stock currently trades at 20.3x FY17F PE, below regional peer average of 23x and at an attractive PEG of 0.7x.
Dividend yield of 3% is decent at 55% payout ratio.

Jumbo enjoys first- mover advantage as one of the first Singapore seafood companies to enter China with the Singapore Chilli Crab. As the Shanghai market is already familiar with consuming the Chinese mitten crab, it is not difficult for them to switch over to the chilli crab.
Growth strategies include franchising and bringing other portfolio brands into China. Growth will accelerate further should it successfully negotiate master franchise contracts in other parts of China to grow its brands.
Singapore has a 5m population with more than 30 seafood outlets. A population of 25m people in Shanghai represents more headroom for Jumbo to open new outlets.

Pegged to peer average of 23x FY17F PE.
Jumbo is trading at 20.3x FY17F PE, below peers’ 23x FY17F PE. We peg our valuation of Jumbo at 23x FY17F PE, in line with peer average to derive our target price of S$0.68.

Apart from operational risks, we see failure to deliver growth in China as a key risk to our earnings growth projection.
We primarily view Singapore’s business as stable while majority of the growth is driven by the China business.

Alfie Yeo DBS Vickers | Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-06-08

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