Jumbo Group - UOB Kay Hian 2019-05-16: 2QFY19 Results In Line

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

Jumbo Group - 2QFY19: Results In Line

  • JUMBO GROUP LIMITED (SGX:42R)’s 2QFY19 results came in within expectations. While revenue declined 1.4% y-o-y, net profit increased 17.6% y-o-y to S$5.0m due to the closure of underperforming outlets and higher franchise income.
  • China operations continue to be a drag on growth even as Jumbo aggressively expands within Singapore and the region.
  • Maintain HOLD with a PE-based target price of S$0.41. Entry price: S$0.37.



JUMBO'S 2QFY19 RESULTS


2QFY19 results in line with expectations.

  • JUMBO GROUP LIMITED (SGX:42R)'s 2QFY19 net profit of S$5.0m (+17.6% y-o-y) is in line with expectations. 2QFY19 revenue dipped to S$41.3m y-o-y due to lower sales from China operations which were partially offset by higher sales from Singapore operations and franchises.
  • Gross profit inched up 0.5% y-o-y to S$26.6m due to higher franchise income. Profit before tax increased 17.7% y-o-y due to higher gross profit and reduction in employee benefits expense (-3.4% y-o-y), operating lease expense (-3.7% y-o-y) and other operating expenses (-10.9% y-o-y). The decline in expenses was mainly due to closure of underperforming outlets as well as lower professional fees and absence of expenses related to the group's 30th anniversary celebrations.

Gross margin improvement.

  • Jumbo's 2QFY19 gross margin improved by 1.2% y-o-y due to closure of underperforming outlets and higher franchise income. Sequentially, gross margin improved 0.8% q-o-q.


STOCK IMPACT


Regional expansion chugging along steadily.

  • Jumbo's first Seafood restaurant in South Korea is expected to begin operations in 3Q19 while plans are underway for two more Tsui Wah Hong Kong-styled "Cha Chaan Teng" outlets in Singapore and Ng Ah Sio Bah Kut Teh outlets in the People's Republic of China and Taiwan.

Focus on new dining experiences in Singapore.

  • Jumbo had a soft launch of Chui Huay Lim which serves Teochew Cuisine. Located in Far East Square, the dining concept focuses on capturing the business dining and group gathering crowd. Jumbo's latest product offering is part of its plan to carve out a larger share of the premium diner's wallet. We are positive about this latest expansion as Jumbo is building on its portfolio of brand while maintaining thick gross margins.


EARNINGS REVISION/RISK

  • No revision to earnings estimates.
  • Risks include a slowdown in sales in China and poor reception at new outlets.


VALUATION/RECOMMENDATION

  • Maintain HOLD with PE-based target price of S$0.41, pegged to peers' average 2019F PE of 20.0x.
  • We view the long-term growth prospects of Jumbo's expansion positively. However, weakness in Chinese consumption is likely to be a drag on Jumbo's growth in the short term. We remain cautious on account of Jumbo's China exposure and will turn positive when outlets begin to show better profitability.
  • Entry price: S$0.37.


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/ 2019-05-16
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.410 SAME 0.410



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