Jumbo Group Limited - CGS-CIMB Research 2019-02-14: 1QFY19 In Line; Earnings Bottomed Out


Jumbo Group Limited - 1QFY19 In Line; Earnings Bottomed Out

  • Jumbo Group's 1QFY9/19 net profit rose 16% y-o-y to S$2.4m, forming 18%/21% of our/consensus FY19F; deemed in line as 1Q is seasonally weak.
  • Net profit was lifted by higher franchise income and better performance from Singapore operations; plans to add more outlets in Singapore.
  • Maintain ADD with a lower Target Price of S$0.52.

1QFY19 in line on higher franchise income, better margins

  • JUMBO GROUP LIMITED (SGX:42R)'s 1QFY19 net profit rose 16% y-o-y to S$2.4m due to higher franchise income as well as better performance from the Singapore business. 4 new franchised JUMBO Seafood outlets were added in four different cities – Taipei, Taichung, Fuzhou and Bangkok – over the past 3 quarters, bringing the total number of JUMBO Seafood outlets across Asia to 17.
  • 1Q net profit formed 18%/21% of our/consensus FY19F; we deem this in line as 1Q is seasonally weak.

JUMBO Seafood – still a favoured seafood brand in Singapore

  • Jumbo Group's 1QFY19 revenue fell 1.5% y-o-y due to the closure of underperforming outlets – two Bak Kut Teh and one JPOT stores. In spite of this, the group remains positive on its Singapore operations.
  • The company said the newly opened JUMBO Seafood outlet at ION Orchard turned in better-than-expected sales turnover (c.S$0.5m) in just half a month since its launch on 12 Dec 2018. We believe the outlet saw brisk Chinese New Year sales, which should boost the company’s seasonally stronger 2Q19F revenue.

More F&B outlets in Singapore in the pipeline

  • Another JUMBO Seafood outlet could be launched within the next six months and plans are underway for one new Teochew cuisine restaurant and two more Tsui Wah outlets in Singapore, the company said.
  • Jumbo Group may also expand its network of franchised F&B outlets overseas, under its JUMBO Seafood and Ng Ah Sio Bak Kut Teh brands, in Asia.

Weaker China operations could dampen growth

  • Earnings growth in Singapore F&B could be marred by weaker contributions or losses from its PRC business, though the impact could be limited in our view as Singapore accounts for the bulk of profit contribution.
  • JUMBO Seafood outlets in China overall reported losses for 1Q19 amid higher operating costs and lower revenues. We lower our FY20-21F EPS by 2-3% on account of weaker China operations.

Maintain ADD with a lower Target Price of S$0.52

  • We think earnings bottomed out in FY18 and could grow ahead on stronger profit contributions from Singapore F&B outlets and from more franchised outlets overseas.
  • Jumbo Group is trading at 18x 12M forward P/E, below its historical average (27x) and regional peers’ average (23x). Our Target Price of S$0.52 is pegged to 21x FY20F P/E (vs. 20x regional peers’ average).
  • Upside catalysts include faster expansion of franchised outlets and better-than-expected earnings growth. A
  • key risk is escalation in operating costs.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.520 DOWN 0.540