Jumbo Group - RHB Invest 2020-05-18: Social Distancing Diminishes Appetite For Crabs; Downgrade To SELL


Jumbo Group - Social Distancing Diminishes Appetite For Crabs; Downgrade To SELL

  • Downgrade to SELL from Neutral, with a slightly lower Target Price of SGD0.19, from SGD0.20, 24% downside.
  • Jumbo Group (SGX:42R)'s 1HFY20 (Sep) PATMI declined 72% y-o-y to SGD2.1m. It was 31% of our previous FY20F estimates and below our expectations.
  • With the circuit breaker measures in place, 3Q20 is likely to be more severely impacted with the ban of on-premise dining. We now expect Jumbo Group's 3Q20 to go into losses before a gradual recovery in 4Q20.
  • No interim dividend was declared.

1H20 revenue declined 13% y-o-y largely due to COVID-19.

  • The pandemic affected China’s footfall since January and escalated to store closures for certain outlets during the Lunar New Year period. Footfall remained low even when shops reopened. On the other hand, Singapore was impacted by the ban of Chinese tourists at the end of January and subsequent social distancing measures as COVID-19 cases increased.
  • High fixed costs from labour and rental expenses resulted in PATMI declining more than the topline. Ultimately, 1H20 was saved by a SGD3m worth of a Government grant from the Job Support Scheme (JSS).

Circuit breaker measures further exacerbated the situation.

  • 3Q sales and profitability are likely to be adversely impacted by the absence of tourist demand coupled with the ban of on-premise dining, with the implementation of circuit breaker measures in Singapore. Even though the circuit breaker is expected to be lifted on 2 June, ministers have cited that dining out would take a longer time to resume.
  • Currently, Jumbo Group has temporarily closed 10 out of 16 outlets in Singapore, with only 6 outlets opened to cater for takeaways and delivery. We expect takeaways and delivery to be < 20% of normal sales.

Some mitigating factors.

  • Jumbo Group (SGX:42R) has implemented a reduction in variable and base salaries, cut down on casual labours and overtime work to reduce its fixed cost. It has also managed to negotiate for some rental waivers for the circuit breaker period.
  • The enhanced JSS for April and May could also provide some relief for the group. But, overall, with the major decline in Singapore sales and a slow recovery in China’s footfall, we think 3Q20 might go into losses, before a gradual recovery in 4Q20 when more social distancing restrictions could be eased.

No appetite for crab.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-05-18
SGX Stock Analyst Report SELL DOWNGRADE NEUTRAL 0.19 DOWN 0.200