Jumbo Group - CGS-CIMB Research 2020-04-01: Brace For A Long Winter

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

Jumbo Group - Brace For A Long Winter

  • Stringent measures by the government to minimise the spread of COVID-19 has resulted in lower footfall in Jumbo Group (SGX:42R) stores.
  • Jumbo Group has rolled out multiple initiatives to cushion revenue loss and tighten cost control but a steep earnings decline in FY20F is inevitable.
  • Downgrade from Add to HOLD; our Target Price is lowered to S$0.22, based on 11.5x FY21F P/E (2 s.d. below Jumbo Group’s historical average).



Suffering amid Covid-19 outbreak

  • Over the past 2 months, the Singapore government has progressively rolled out multiple advisories to minimise the spread of COVID-19. Currently, all travellers entering Singapore will be issued a 14-day Stay Home Notice (SHN) while local residents are urged to avoid non-essential trips out of homes.
  • With
    1. the steep drop in tourist arrivals, and
    2. locals dining out less,
    Jumbo Group has observed lower footfall in its local stores.
  • We are also still seeing weakness in its China operations as consumer sentiment remains low due to macro uncertainties.


What is Jumbo doing to ease the pain?

  • Jumbo Group has been carrying out more promotional activities to draw local crowds to its stores. It has also developed a new Bento set to boost its online food delivery offerings and has been increasing collaboration with delivery platforms to drive online growth.
  • Meanwhile, cost-saving measures include controlled overtime hours, reduced reliance on part-time workers, no-pay leave and shorter operating hours. Jumbo Group is also actively negotiating with landlords to secure rental reliefs.


Lowering assumptions

  • Factoring in the impact from COVID-19, we forecast the SSSG decline to worsen in Apr (- 65% y-o-y) and expect the situation to only gradually improve in July. With our lowered SSSG assumption, our FY20-22F EPS is cut by 18.9-83.1%. We now forecast Jumbo Group to record a 25.2% revenue decline in FY20F.
  • Given most of its operating expenses are relatively fixed, the operating deleverage could cause Jumbo Group’s net profit to fall by c.80% in FY20F, based on our forecasts.


Downgrade to HOLD with lower Target Price of S$0.22






ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-01
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.22 DOWN 0.470



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