Jumbo Group - RHB Invest 2020-03-26: Hit By COVID-19; Downgrade To NEUTRAL


Jumbo Group - Hit By COVID-19; Downgrade To NEUTRAL

  • Jumbo Group (SGX:42R) is one of the major victims of COVID-19 outbreak. As Jumbo Group’s foodservice brands largely cater to tourists, corporate dining and social gatherings, we expect its domestic sales to be significantly impacted this year, before recovering in FY21F.
  • Its China operations, being at the epicentre of the outbreak, are also expected to see losses widening this year.

Singapore operations dealt with major blow from COVID-19.

  • With the increased severity of COVID-19 outbreak in Singapore, we expect domestic earnings to deteriorate on declining footfall. Social gatherings, corporate dining and tourists segments, each contribute approximately one-third to Jumbo Seafood sales in Singapore.
  • Since the outbreak, we expected sales from tourists and corporate dining to decline sharply. However, the Government’s announcement on 24 Mar to limit gatherings outside of work and school and to practice physical distancing is likely to further weaken the footfall from local patrons from April onwards.
  • Meanwhile, two of its Ng Ah Sio Bak Kut Teh outlets are located at tourist-dependent spots at Marina Bay Sands and Resort World Sentosa. We also expect sales from both outlets to be adversely impacted.

Even more painful in China.

  • Approximately 20% of Jumbo Group’s revenue is attributed to China. We expect losses from China to escalate sharply in FY20F, affected by the extended Lunar New Year Holiday, travel bans across cities and general decline in footfall. Even as the COVID-19 caseloads in China decline, management highlighted that footfall in the malls remains very low.
  • We believe it would take some time before footfall recovers as consumers remain very vigilant on containing the spread of the virus at this point of time.
  • Management is also considering the closure of the Shanghai Raffles City outlet this year when the lease expires.

Change in earnings.

  • We cut our FY20-22F earnings by 48%, 4% and 4% as decline in revenue and high proportion of fixed costs lead to lower operating leverage. Jumbo Group has taken steps to reduce its casual labour to reduce manpower costs and is actively engaging its landlords to negotiate for better rental rebates.
  • We also expect store expansion to stall this year given the tough business environment.

NEUTRAL for now.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-26
SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 0.20 DOWN 0.440