Jumbo Group - RHB Invest 2019-12-03: Turnaround Of China Operations Is Key; BUY


Jumbo Group - Turnaround Of China Operations Is Key; BUY

  • Maintain BUY with a revised Target Price of SGD0.44 from SGD0.47, 19% upside and c.4% yield.
  • With 5 new restaurants in Singapore and 2 outlets of its franchise opened in FY19 (Sep), we expect Jumbo Group to deliver steady earnings growth next year as FY20 would capture the full-year contributions of these new stores.
  • China operations were in dismay last year but the group has since rolled out pilot plans for improvements. A turnaround of its mainland business would be a key catalyst.

Key earnings growth contributors for FY20F.

  • Despite intensifying competition in Singapore’s food and beverage (F&B) industry, JUMBO GROUP (SGX:42R) was able to generate positive SSSG for its local operations. Moving into FY20F, we expect SSSG for Singapore to remain at 2-3% buoyed by higher tourist arrivals.
  • We also note that Jumbo Seafood Gallery outlet was closed for a four week renovation in FY19. The absence of closure should add another SGD1.2m to revenue in FY20F.
  • Jumbo Group opened two Jumbo Seafood restaurants in FY19: Jewel Changi Airport and Ion Orchard. Both are great locations for capturing tourist footfalls and have broken even. Their full-year contributions in FY20F would be key drivers to earnings growth.

Growing its Teochew restaurants.

  • In Apr 2019, Jumbo Group opened Chao Ting and Zui Yu Xuan Teochew restaurants. Chao Ting has broken even in FY19 but contribution is likely to be small as it largely serves only the weekday lunch crowd. Zui Yu Xuan is a more up-market set-up that caters to business dining or family gatherings. It has also broken even in Oct 19 and should continue to contribute positively to FY20 earnings.

Network expansion to bring higher franchise income.

  • Between its Jumbo Seafood and Ng Ah Sio Bak Kut Teh brands, the group has 11 franchised outlets. Jumbo Group plans to open another five franchise outlets over the next 12 months.

Turnaround of China operations is a key catalyst.

  • Currently, we conservatively forecast the performance in China to be flattish in FY20F but note that plans are underway to uplift the China business.
  • Jumbo Group has converted its Shanghai Raffles City outlet to Jumbo Seafood Kitchen, which has a lower average ticket size of CNY150 to cater to the wider mass market. According to management, the new concept has shown early signs of good traction and improving margins. Should this concept work out, we believe the group would convert more of its China outlets to Jumbo Seafood Kitchen which could potentially drive a turnaround for its profitability in China. Excluding that, we still expect stable earnings growth coming from its tions in FY20F.
  • Maintain BUY. See Jumbo Group Share Price; Jumbo Group Target Price.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-12-03
SGX Stock Analyst Report BUY MAINTAIN BUY 0.44 DOWN 0.470