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

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).

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.

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.

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.

Jumbo Group’s balance sheet remains strong with a net cash position, which will help it weather the COVID-19 crisis. Its cash position accounts for c.35% of current market cap. Jumbo Group's share price has fallen 48% YTD, pricing in the impact from COVID-19, in our view.
Due to a tough FY20F outlook ahead, we downgrade Jumbo Group 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 mean).
See Jumbo Group Share Price; Jumbo Group Target Price; Jumbo Group Analyst Reports; Jumbo Group Dividend History; Jumbo Group Announcements; Jumbo Group Latest News.
Upside risks include earlier-than-expected SSSG recovery while downside risks include prolonged social distancing measures to contain the Covid-19 outbreak.

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