Jumbo Group - UOB Kay Hian 2018-06-27: Tsui Wah Opening A Success

Jumbo Group - UOB Kay Hian 2018-06-27: Tsui Wah Opening A Success JUMBO GROUP LIMITED SGX: 42R

Jumbo Group - Tsui Wah Opening A Success

  • Jumbo has opened the first Tsui Wah outlet, known for its crispy bun served with condensed milk, in Clarke Quay in Jun 18. The outlet has so far seen a very positive response with queues in the late afternoon on some days.
  • We are optimistic that Tsui Wah will mirror the success seen in Hong Kong, Macau and China.
  • Maintain HOLD with a DCF-based target price of S$0.53. Suggested entry price: S$0.48.



WHAT’S NEW


JV with Hong Kong-listed Tsui Wah Holdings.

  • In Mar 18, Jumbo Group (Jumbo) entered into a JV with Tsui Wah Holdings (Tsui Wah) to bring the famous Hong Kong tea restaurant concept to Singapore. Tsui Wah has over 70 outlets across Hong Kong, Macau and China.
  • The JV with Jumbo will mark its maiden foray into Southeast Asia. Jumbo opened the first Singapore outlet at Clarke Quay on 15 Jun 18. So far, the 140-seater outlet has received fairly positive reviews with an estimated per pax spending of S$15.

Exploring a sixth outlet in Singapore.

  • Jumbo has not opened a new outlet in Singapore since 2008 when the outlet in Dempsey Hill was launched.
  • Jewel Changi Airport, which is a 10-storey complex that will house over 300 different shops and a variety of F&B options for consumers in Changi Airport, could be an interesting option for Jumbo to open a new outlet due to its strong brand equity and ability to attract tourist traffic flow.
  • Other potential areas where Jumbo might open its sixth seafood outlet in Singapore include Singapore’s Central Business District which could replicate the success seen with the Jumbo Seafood outlet in IFC Mall, Shanghai which caters to the corporate crowd.

Potential for other brands to go regional.

  • We understand that Jumbo is also in discussions with potential partners to take other brands in its portfolio to countries outside of Singapore either through JVs or the franchising route. This would include brands such as Ng Ah Sio Bak Kut Teh and Jpot. 
  • For instance, Ng Ah Sio Bak Kut Teh is well-known among Taiwanese food blogs as one of the three most popular bak kut teh brands in Singapore. Former Taiwanese President Ma Ying-jeou was also a customer during one of his visits to Singapore.


STOCK IMPACT


Earnings likely to remain weak in FY18 but building for the future.

  • With a new outlet in Xi’an, China slated to open in Jun 18, FY18 is turning out to be an expansionary year for the group. Earnings are likely to remain weak as the company incurs start-up costs in relation to new outlet openings and promotional activities.
  • We expect earnings growth to only return in FY19.


EARNINGS REVISION/RISK

  • No change to our earnings estimates.
  • Key risks include a slowdown in sales in China outlets and poor reception at new outlets.


VALUATION/RECOMMENDATION

  • Maintain HOLD with DCF-based target price of S$0.53. Suggested entry price is S$0.48.


SHARE PRICE CATALYST

  • Higher-than-anticipated store openings.
  • Franchising deals with regional companies.





Nicholas Leow UOB Kay Hian | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-06-27
SGX Stock Analyst Report HOLD Maintain HOLD 0.530 Same 0.530



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