Jumbo Group - UOB Kay Hian 2018-11-23: 4QFY18 Results In Line; Expenses Still Outpace Revenue Growth

JUMBO GROUP LIMITED (SGX:42R) | SGinvestors.io JUMBO GROUP LIMITED (SGX:42R)

Jumbo Group - 4QFY18: Results In Line; Expenses Still Outpace Revenue Growth

  • Jumbo Group’s 4QFY18 and FY18 results are in line with expectations, representing 22.4% and 101.1% of our full-year estimate respectively. 4QFY18 net profit declined 7.3% y-o-y as operating expenses ran ahead of revenue growth on aggressive expansion in outlets.
  • Jumbo Group proposed a final dividend of 0.7 S cents.
  • Jumbo continues to expand nicely in the region through a series of JVs and franchise agreements.
  • Maintain HOLD with a lower PE-based target price of S$0.42. Entry price: S$0.38.



4QFY18 RESULTS


4QFY18 results in line with expectations.

  • Jumbo Group’s (Jumbo) 4QFY18 and FY18 net profits of S$2.4m and S$11.0m (-7.3% y-o-y, -23.8% y-o-y) are in line with our expectations.
  • 4QFY18 and FY18 revenue grew to S$39.7m and S$153.1m, up 4.0% y-o-y and 5.5% y-o-y respectively, with the increase attributable to operations in China (+S$5.8m y-o-y) and Singapore (+S$2.1m y-o-y).
  • 4QFY18 and FY18 attributable net profit declined (-S$0.2m and - S$3.5m) due to higher promotional expenses and higher salaries to support new outlets.

A higher cost base to support regional expansion.

  • In 4QFY18, gross margin remained relatively stable y-o-y at 6.3% and improved 0.6ppt q-o-q. Salaries, utilities and depreciation rose 7.6%, 9.3% and 20.8% y-o-y respectively in 4QFY18. Jumbo incurred higher salaries due to an increase in headcount and remuneration to support its regional expansion.
  • Utilities and depreciation rose in tandem with new outlets and expansion of its corporate office in China.


STOCK IMPACT


Regional expansion humming along smoothly.


  • FY18 has panned out to be a year of expansion for Jumbo. It opened two Jumbo Seafood restaurants in China and added four Jumbo Seafood restaurants and one Ng Ah Sio Bak Kut Teh outlet to its franchise network. 
  • The group also obtained the franchise to operate Tsui Wah Cha Chaan Teng in Singapore d the first outlet in Jun 18.

Singapore update.

  • Going forward, Jumbo targets to open more outlets in Singapore to drive growth in its Singapore operations. In the next 12 months, Jumbo intends to open two Jumbo Seafood restaurants, one Teochew cuisine restaurant and at least two more Tsui Wah Cha Chaan Teng outlets in Singapore.


EARNINGS REVISION/RISK

  • We tweak our net profit estimate for FY19 to S$13.4m (-0.8%) to account for higher operating cost for leases as a result of expansion plans in Singapore. We also introduce 2021 net profit estimate.
  • Risks include a slowdown in sales in China and poor reception at new outlets.


VALUATION/RECOMMENDATION

  • Maintain HOLD with a lower PE-based target price of S$0.42, pegged to peers’ average 2019F PE of 20.0x.
  • We have switched our valuation methodology to PE to better capture near-term earnings. Entry price is S$0.38.


SHARE PRICE CATALYST

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





Yeo Hai Wei UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-23
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.420 DOWN 0.490



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