JUMBO GROUP LIMITED (SGX:42R)
Jumbo Group - Weak Outlook, Lofty Valuations
- Jumbo Group's 2H20 below on lower margins as opex was higher than expectations.
- Challenging outlook as mass tourist arrivals are unlikely to materialise in the immediate term.
- Market is pricing Jumbo Group too optimistically, expecting Jumbo Group's earnings to rebound to S$10.3m in FY21F vs our expectation of S$7.6m.
- Maintain FULLY VALUED and S$0.21 target price.
2H20 below on lower margins.
- Jumbo Group (SGX:42R)'s 2H20 losses of S$10m was below our expectations. While revenue of S$31m (-60% y-o-y) was in line, the earnings disappointment stemmed from higher than expected operating expenses.
- No final dividend was declared by Jumbo Group, in line with our zero-dividend forecast.
Revenue decline affected by COVID-19.
- Jumbo Group's revenue decline was led by decline in Singapore (-75% y-o-y, S$15.4m) as safe distancing measures and border restrictions kept diners away and impacted footfall negatively. Outlets in tourist areas were particularly impacted, especially Ng Ah Sio Bak Kut Teh outlets in Marina Bay Sands and Resort World Sentosa which were closed until July 2020, and Jumbo Seafood Riverside Point and The Riverwalk outlets which are mainly tourist dependent.
- China sales declined by 33% y-o-y to S$8.8m, with lower footfall as a result of the pandemic as well, including the closure of Jumbo Kitchen Raffles City Shanghai outlet.
- Taiwan contributed S$6.7m through a maiden consolidation in 2H20.
Lower margins led by higher than expected opex.
- Jumbo Group's COGS and gross margins of 61.6% were in line. However, higher than expected opex came in the form of other operating expenses.
- We had expected lower costs as some outlets were temporarily closed during the Circuit Breaker, but the cost savings were less than expected.
- There was impairment of S$3m for loan write off to its Korean associate (S$2.3m) and S$1.3m on impairment to property, plant and equipment for non-performing outlets of Ng Ah Sio Bak Kut Teh at Resort World Sentosa and Jumbo Seafood outlets in Xi’an and Taichung.
Maintain FULLY VALUED and target price S$0.21.
- We believe Jumbo Group’s outlook will continue to be challenging in the immediate term, as mass tourists are unlikely to return. Our forecasts remain largely unchanged, factoring in a gradual recovery as border restrictions open up and tourists return in the next few years.
- For now, Jumbo Group remains overpriced at 27x FY21F PE. At current Jumbo Group's share price, market is expecting earnings to recover to S$10.3m profit based on a normalised 20x forward PE.
- We would turn positive on Jumbo Group when visibility for return of mass tourists into Singapore improves.
- See Jumbo Group Share Price; Jumbo Group Target Price; Jumbo Group Analyst Reports; Jumbo Group Dividend History; Jumbo Group Announcements; Jumbo Group Latest News.
Alfie YEO
DBS Group Research
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https://www.dbsvickers.com/
2020-11-27
SGX Stock
Analyst Report
0.210
SAME
0.210
