Jumbo Group - DBS Research 2019-11-27: Margin Expansion Kicking In Nicely


Jumbo Group - Margin Expansion Kicking In Nicely

  • Jumbo Group's 4Q19 earnings in line; net earnings growth led by cost efficiencies.
  • Gross and operating margins were higher.
  • Regional store expansion to continue.
  • Maintain BUY and S$0.47 Target Price.

4Q19 earnings in line, growth led by better cost control.

  • JUMBO GROUP LIMITED (SGX:42R)'s 4Q19 operating profit and core net earnings grew 39.7% y-o-y and 33.8% y-o-y respectively to S$4.5m and S$2.9m, due largely to better cost efficiencies. Revenue was up a marginal 1.1% y-o-y to S$40.6m due to increase in outlets in Singapore, offset by decline in China revenue. See Jumbo Group Announcements; Jumbo Group Latest News.
  • Two new JUMBO Seafood restaurants, a new Zui Yu Xuan Teochew Cuisine restaurant, and a new Chao Ting Teochew Pao Fan outlet were opened during the year in Singapore which helped contribute to revenue growth.
  • Final DPS of 0.7 Scts was declared, bringing total dividend for the year to 1.2 Scts, equivalent to a payout ratio of 66%, slightly below our 70% expectation. See Jumbo Group Dividend History.

Higher margins, better operational leverage kicking in as anticipated.

  • The quarter saw better operational leverage from lower input cost and consumables as gross margins improved by 1.1ppts to 64.2%.
  • Operating margins improved to 11.1% (+3.1ppt) benefitting from better gross margins and lower marketing, and cleaning expenses. This is in line with our expectations that margins would improve as the company closes lower margin outlets to redeploy resources to newer high margin outlets.

Regional store expansion strategy underway.

  • Jumbo Group continues to grow regionally having ramped up to two JUMBO Seafood restaurants in South Korea, four Ng Ah Sio Bak Kut Teh outlets in Taiwan, and two Tsui Wah outlets in Singapore.
  • Outlet growth is expected to continue with plans for more Ng Ah Sio Bak Kut Teh outlets in China and Taiwan, as well as more JUMBO Seafood outlets in Thailand, Vietnam and China.

Maintain BUY and S$0.47 Target Price.

  • We continue to like Jumbo Group for its regional expansion story, steady earnings growth, decent yield of 3.6-3.8%, strong cashflow generation, and strong balance sheet.
  • No change to our earnings forecast target price based on 23x FY20F PE. See Jumbo Group Share Price; Jumbo Group Target Price.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | https://www.dbsvickers.com/ 2019-11-27
SGX Stock Analyst Report BUY MAINTAIN BUY 0.470 SAME 0.470