Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2018-03-12: Importing Tsui Wah Brand

Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2018-03-12: Importing Tsui Wah Brand JUMBO GROUP LIMITED 42R.SI

Jumbo Group Ltd (JUMBO SP) - Importing Tsui Wah Brand

Bringing an established brand into Singapore 

  • Jumbo has entered into a 49% joint venture with Tsui Wah (1314 HK; Unrated) to set up a HK-style “Cha Chaan Teng” in Singapore. The brand is well-known in HK and China, with 70 outlets as of Jan 2018. This JV will be its first entry into the ASEAN market. 
  • The JV will open one outlet in mid-2018 to test the market before planning on further expansion. 
  • We think this is a long-term positive as it adds another scalable brand into Jumbo’s portfolio and could leverage its established network in Singapore. However, we trim our FY18E EPS by 3% for additional start-up costs (no other revisions). Maintain BUY and DCF-based Target Price of SGD0.70 (WACC 9%).

Partnering with a well-known brand in HK and China 

  • The JV vehicle has signed a franchise agreement of 10 years for the right to use the “Tsui Wah” brand name in Singapore. Jumbo will inject SGD245k of capital into the JV vehicle. This addition will be Jumbo’s sixth F&B brand in Singapore. 
  • The brand is a highly regarded F&B chain in HK and China that currently operates 32 outlets in HK, 35 outlets in China and 3 outlets in Macau. Jumbo plans to capitalise on the potential of the HK-style “Cha Chaan Teng” market in Singapore to broaden its local customer base.

Long term positive but expect near-term start-up costs 

  • We view this JV positively as it enables Jumbo to tap into the growth potential of an established brand and leverage its own existing network of 15 restaurant outlets in Singapore. 
  • Based on our back of the envelope calculation from Tsui Wah’s FY17 annual report, each outlet generates around SGD0.24m in earnings per year. Jumbo’s 49% share is equivalent of SGD0.12m or 0.6% of FY19E EPS. 
  • We trim our FY18E EPS by 3% to account for additional start-up costs, including staff training, rental and marketing costs. Also, the new restaurant is only expected to contribute to revenue around 4Q18.

Swing Factors


  • 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.
  • Expansion success, especially in overseas markets, such as China, Taiwan and Vietnam.


  • Any changes in China’s food-safety laws that could affect China’s imports of mud crabs.
  • Shortage of critical ingredients for its signature dishes: crabs, other seafood.
  • Epidemics or health scares that can damage its reputation, e.g. mass food poisoning, salmonella.
  • Poor execution of expansion, including major delays in opening of and longer-than-expected breakeven for new outlets.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-03-12
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.700 Same 0.700