Jumbo Group - CGS-CIMB Research 2020-05-15: Cloudy Outlook Ahead


Jumbo Group - Cloudy Outlook Ahead

  • Jumbo Group's 1HFY9/20 net profit fell 71.5% y-o-y to S$2.1m on lower footfall, with stringent measures put in place by the government to minimise spread of Covid-19.
  • We see a bumpy road to recovery even after Covid-19 is contained, as tourists and business meals make up a significant portion of Jumbo’s sales.
  • Downgrade from Hold to REDUCE; Target Price is lowered to S$0.20.

Jumbo Group's 1HFY20 results impacted by Covid-19

  • Jumbo Group (SGX:42R)'s 1HFY9/20 net profit fell 71.5% y-o-y to S$2.1m, as the Covid-19 outbreak has impacted footfall since Feb 20. Topline fell 13.1% y-o-y, while OPM contracted 7.8% pts y-o-y due to
    1. more promotional campaigns and greater discounts and
    2. operating deleverage.
  • Jumbo's 1HFY20 net profit came in at 89%/60% of our/Bloomberg consensus FY20F.

Expecting a long path to recovery

  • We estimate tourists and business meals account for c.60% of Jumbo’s typical revenue base in Singapore. With local consumer spending also likely to remain cautious under the current macro backdrop, we believe Jumbo’s footfall will take time to recover even after the circuit breaker measures are lifted.
  • We forecast SSSG decline to worsen in Apr and May (-80% y-o-y) before recovering to -50% in Jun. Management noted that while its China operations are seeing signs of recovery, footfall remained weak at c.70% of the normal rate in Apr.

What is Jumbo doing to ease the pain?

  • Jumbo has boosted its online food delivery offerings and increased collaboration with delivery platforms to drive online growth during the circuit breaker period. It will also continue to carry out more promotional activities to draw local crowds to its stores after the circuit breaker measures are lifted.
  • Meanwhile, cost-saving measures include controlled overtime hours, reduced reliance on part-time workers, no-pay leave and shorter operating hours. Jumbo is also actively negotiating with landlords to secure rental relief.

Lowering assumptions

  • Despite active cost-saving measures and government relief programme, we forecast Jumbo to record a net loss of S$2.8m in FY20F. With our lower SSSG assumption, we also cut our FY21-22F EPS by 7-39%.

Downgrade to REDUCE with a lower Target Price of S$0.20

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-15
SGX Stock Analyst Report REDUCE DOWNGRADE HOLD 0.20 DOWN 0.220