SINGAPORE (Oct 5): Jumbo Group is rapidly expanding into new cities in Asia and opening more seafood franchise outlets over the next four years.
In FY18 ended Sept, Jumbo added three new Jumbo Seafood franchise outlets in Taipei, Taichung and Fuzhou. It plans to open one new franchise outlet in Bangkok by end of the year.
“We estimate its franchise outlet count will rise to five by end FY18, including one Bak Kut Teh franchise outlet that was opened in Taipei in July,” says CGS-CIMB lead analyst Colin Tan in a Thursday report.
Jumbo plans to add five to six franchise outlets each year and targets Shenzhen, other Chinese cities, Korea, Hong Kong, Macau and Indonesia for future expansion.
Jumbo’s local seafood outlets continue to capitalise on their signature chilli crab dish, drawing in strong average monthly sales of $148-159 psf in Oct 2014 to March, compared to declining sales of the “No Signboard Seafood” restaurants, based on CGS-CIMB estimates.
Other F&B brands under the group also showed improvement in sales psf over the same period.
“We project that Jumbo would add two new Jumbo Seafood outlets in Singapore – one Jumbo Premium Seafood outlet in ION Orchard shopping mall and another potentially in the upcoming Jewel Changi and one new Chui Huay Lim Teochew Cuisine outlet over the next 12 months,” says Tan, adding the three new restaurants could add $35-40 million to group revenue by end FY20.
In 3Q18, Jumbo’s operating costs declined 16.5% q-o-q to $85 psf per month, based on CGS-CIMB estimates, after the sharp spike in 4Q17-2Q18 due to the opening of three new outlets in China.
If Jumbo maintains or reduces its costs psf amid the opening of new outlets in Singapore and franchise expansion, Tan says this would translate into uplift in FY19-20 net margins.
“We raise operating cost assumptions, lowering FY18-20 EPS by 5.1-14.9%. We expect Jumbo’s EPS to trough in FY18, before strong recovery in FY19,” says Tan.
Jumbo is now trading at 19.8 times 12-month forward P/E, more than 1 s.d. below historical three-year mean of 26.7 times.
CGS-CIMB is maintaining its “add” but lowering its target price to 58 cents, pegged to 21 times FY20 earnings.
Year to date, shares in CGS-CIMB are down 17.2% to 48 cents.
