Jumbo Group Limited - CGS-CIMB Research 2018-08-14: Two New Local Jumbo Seafood Openings Ahead

JUMBO GROUP LIMITED SGX:42R

Jumbo Group Limited - Two New Local Jumbo Seafood Openings Ahead

JUMBO’s 3QFY9/18 results deemed in line; 9M18 net profit formed 71%/64% of our/consensus full-year forecasts.
PATMI fell 35% y-o-y in 3QFY18 due to drag from higher operating costs in People's Republic of China (PRC) to support new outlets and expanded corporate office.
We expect better profits ahead with improved contributions from new PRC stores opened in Jan and May respectively.
Planning two new Jumbo Seafood outlets in Singapore, which could yield c.S$150 psf/month of sales – double that of Jumbo Seafood in PRC, based on our estimates.

JUMBO’s 3QFY18 net profit was down 35% y-o-y to S$2.2m despite higher revenue (up 2.9%yoy), mainly due to drag from higher operating costs from higher staff count to support its new outlets in the PRC and expansion of its PRC corporate office, as well as marketing expenses relating to JUMBO’s 30th anniversary celebrations.
Overall, 9M18 net profit accounted for 71%/64% of our/consensus full-year forecasts. Gross profit margin has been 61.6%-63.3% over the last five quarters, relatively stable in our view.

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The operational drag partially resulted from up-front costs incurred for two new PRC outlets opened in FY18F (Jumbo Shanghai L’Avenue Mall in Jan 18 and Jumbo Xi’an in May 18) – a step-up from Jumbo’s pace of one new PRC store per FY historically.
We expect better profits ahead with full-quarter sales contribution from its Xi’an outlet and improved sales contributions from L’Avenue Mall store in China.

JUMBO revealed its plans to open two new Jumbo Seafood restaurants (instead of one in our earlier assumptions), one Teochew cuisine outlet as well as two new Tsui Wah outlets in Singapore in the next 12 months period.
We estimate Jumbo Seafood outlets in Singapore yielded monthly sales of c.S$150 psf, almost doubled that of c.S$76 psf/mth from its PRC outlets. Thus, we view the expansion of Jumbo Seafood in Singapore positively as it could drive stronger sales and potentially better margins ahead.

Upside catalysts could include better-than-expected earnings growth and significant uplift in margins.
Downside risks include slowdown in store sales and cost escalation on a per- store basis.

We leave our EPS forecasts unchanged as results are generally in line with our forecasts.
Maintain ADD with an unchanged Target Price of S$0.62, based on 23x CY19F P/E, in line with its regional peers’ average of 23x.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-14

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