JUMBO GROUP LIMITED (SGX:42R)
Jumbo Group - Long Road To Recovery; SELL
- Jumbo Group’s FY20 (Sep) results came in below market expectations, with a loss of S$8.2m for the year. The losses were largely attributed to the implementation of Singapore’s Circuit Breaker in 3QFY20, which severely impacted on-premise dining.
- Moving into FY21F, we remain pessimistic on the outlook, as the bulk of Jumbo Group’s businesses are dependent on tourist visits and large scale gatherings, which are likely to take some time for a full recovery.
- Maintain SELL and DCF-derived S$0.19 target price, 42% downside, 0% yield.
COVID-19, high fixed costs resulted in FY20 losses.
- Jumbo Group (SGX:42R)’s FY20 revenue declined 37% y-o-y due to COVID-19 lockdowns and safe distancing measures in China (1HFY20), and Singapore (2QFY20 onwards). PATMI fell into the red at –S$8.2m as the group is in the F&B service, and has high fixed overheads from rental and labour.
- While Jumbo Group managed to reduce manpower costs by 18%, lease expenses remained fairly stable, compared to last year. It also incurred impairment costs of S$3.7m relating to its loans to its Korean associates, and on property, plant and equipment for its non-performing outlets.
High dependence on tourism and large-scale gathering hindering Singapore’s recovery.
- Approximately one-third of its local business was attributed to tourist spending, while another one-third was generated from corporate dining. While Singapore is in the midst of moving into phase 3 of economic reopening, cautious business sentiment and the lack of international travel would mean a soft FY21F revenue outlook for Jumbo Group.
Stronger recovery trend for China.
- China has successfully contained the spread of COVID-19 post 2QFY20. According to management, retail sentiment in China has normalised, and Jumbo Group registered positive momentum in sales over the past few months.
- Jumbo Group has closed its underperforming outlet in Raffles City, Shanghai which should help narrow losses and chart a turnaround for its China operations.
Maintain SELL.
- We think the recovery in Jumbo Group's share price is unjustified, given that the route to earnings recovery should be rather long and slow – on its high fixed costs and dependence on tourists spending. We understand from management that the business was still not profitable in 4QFY20 (phase 2 of Singapore’s economic reopening). Hence, we cut our Jumbo Group's FY21-22F earnings forecast by 81-45% to account for weaker-than-expected recovery.
- Our DCF-derived target price is maintained due to reduction in capex for cash conservation. Jumbo Group also did not declare dividend for FY20.
- See Jumbo Group Share Price; Jumbo Group Target Price; Jumbo Group Analyst Reports; Jumbo Group Dividend History; Jumbo Group Announcements; Jumbo Group Latest News.
- Key upside risk: Vaccine development, faster-than-expected tourism recovery, and sharp turnaround of China’s profitability.
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-30
SGX Stock
Analyst Report
0.190
SAME
0.190
