Jumbo Group - SAC Capital 2022-08-01: Sales Rebound From Pent-up Domestic Demand & Tourist Arrivals


Jumbo Group - Sales Rebound From Pent-up Domestic Demand & Tourist Arrivals

  • We expect Jumbo Group's earnings to improve ahead from a net loss of S$11.8m (FY21) to a smaller net loss of S$5.7m in FY22E and a net profit of S$5.3m in FY23E.
  • Jumbo Group's share price is currently trading at a forward P/E of 30.8x, and EV/EBITDA of 4.5x for FY23E respectively.
  • We initiate coverage on Jumbo Group with a BUY at a DCF-derived target price of S$0.38 (COE: 11%).

Jumbo Group - A renowned household brand offering numerous dining concepts.

  • Established in 1987 with its Flagship Jumbo Seafood at the East Coast Seafood Centre, Jumbo Group (SGX:42R) has grown its Jumbo Seafood outlets in Singapore and overseas, and ventured into other cuisines through acquisitions, franchise and franchise-in model.
  • Jumbo Group currently has 8 F&B brands, with a presence in 11 cities in 6 countries.
  • The growth drivers for Jumbo Group are
    1. With the reopening of the economy and removal of border restrictions, there is a strong pent-up demand for dining-out and increase in tourists visits;
    2. After two months of strict lockdowns in Beijing and Shanghai, China is also relaxing movement restrictions, which help to rejuvenate consumption demand at restaurants;
    3. Enlargement of the footprints of Jumbo Seafood and other brands in Asia through the franchise model;
    4. Potential to raise prices in an inflationary environment.
  • The headwinds going forward are
    1. Manpower shortage due to the low unemployment rate and stringent cap on foreign dependency ratio in Singapore;
    2. China’s zero-COVID policy presents uncertainty in business operations;
    3. Rising input costs with higher commodity prices. Thus far, Jumbo has been able to pass this on and maintain gross margin, but it could face resistance if the macro environment weakens;
    4. Recessionary pressure might lead to cut back in discretionary spendings, especially on high-ticket meals.
  • Jumbo Group’s closest competitor for crab cuisines is No Signboard (SGX:1G6). However, No Signboard has faced financial difficulties when the outlets could not operate when COVID-19 hit. Its premium flagship outlet at Esplanade and Vivocity outlet was closed, leaving only the Geylang Road outlet.
  • Other close competitors of Jumbo Group that serve seafood cuisines include listed Tung Lok Restaurants (SGX:540) and non-listed Crystal Jade and Paradise Dynasty. RE&S (SGX:1G1), Sakae (SGX:5DO) and Japan Foods (SGX:5OI) focus on Japanese cuisines, while Soup Holdings (SGX:5KI) offer traditional Chinese dishes.
  • Jumbo Group is an outlier in terms of P/B and EV/EBITDA. This could be due to a strong brand recognition amongst the locals as well as tourists.

Jumbo Group - Valuation

Yeo Peng Joon SAC Capital Research | https://www.saccapital.com.sg/ 2022-08-01
SGX Stock Analyst Report BUY INITIATE BUY 0.38 SAME 0.38