Is Jumbo Group starting to look as tantalising as its chilli crabs? | ZUU Investing Idea
Jumbo Group is starting to look good as an investment opportunity once again, as stronger profit contributions from its Singapore operations appear to be able to mitigate the drag from its China operations.
CGS-CIMB resumed coverage for the F&B company on Aug 26 on that expectation.
“We expect Jumbo’s Singapore operations to be the main earnings driver in FY19/20F, post the closure of lower-margin stores and opening of higher-end, higher footfall outlets,” says Ong Khang Chuen.
Ong noted that the two Jumbo Seafood stores that commenced operations this year include Ion Orchard and Jewel Changi Airport, and both reported healthy sales ramp which could add to the group’s overall performance for FY19.
Ong is also forecasting a same store sales growth (SSSG) of 3% for FY19 – buoyed by tourist arrival growth from North Asia – and a 6.7% growth in the Singapore operations, that would boost overall growth to 0.9% y-o-y.
At the same time, the group appears to be continuing its overseas expansion plan, through both joint ventures and franchising. During the financial year, the group added three Jumbo Seafood franchise outlets in Bangkok, Fuzhou and Seoul and two Bak Kut Teh (BKT) franchise stores in Taiwan, bringing the total number of franchise stores to nine.
“We believe Jumbo Seafood stores in Seoul, Bangkok and Ho Chi Minh are performing well, and expect Jumbo to expand its presence in these cities in the near term,” says Ong, adding that the group is expected to continue adding 5 to 6 franchise outlets annually.
Franchise income is expected to contributed 1.1% to group revenue by FY2020.
While its China operations remains weak, Ong remains optimistic. “Jumbo is actively optimising its cost structure of its China operations [and] we believe Jumbo could carry out more marketing plans to boost brand awareness and explore the conversion of weaker performing stores into other dining concepts.”
“While it may take time for Jumbo’s seafood restaurants in China to return to profitability, we forecast losses for the China operations to peak in FY19F, and be less of a drag in coming years”
CGS-CIMB has an “add” recommendation on Jumbo Group with a target price of 47 cents.
Jumbo Group closed at 37 cents on Aug 30.