SINGAPORE (Sept 27): UOB Kay Hian is keeping its “hold” recommendation on Jumbo with a target price of 37 cents and an entry price of 33 cents, following the opening of Jumbo’s second Tsui Wah outlet in Singapore.
See: Jumbo opens second Tsui Wah outlet in Singapore
Riding on the success of its maiden Tsui Wah outlet at Clarke Quay, which was launched in June last year, Jumbo opened its second outlet in The Heeren earlier this month. The new outlet comprises quick service, alfresco and indoor dining areas with a total seating capacity of 192 and occupies a floor area of over 4,800 sq ft.
See: Jumbo sees tea-riffic response with latest Tsui Wah opening
In a Thursday report, analyst Joohijit Kaur says, “While we do not expect significant near-term financial impact, we believe the expansion could help improve economies of scale.”
To recap, Jumbo entered into a joint venture (JV) with Tsui Wah Holdings in March last year to bring the famous Hong Kong-style “cha chaan teng” that specialises in Hong Kong dishes to Singapore. The two tea restaurants in Singapore are the only ones outside of China, Hong Kong and Macau.
On the industry level, the F&B scene seems to be resilient amid challenging economic environment with the F&B service index for 7M19 recording a growth of 3.2% y-o-y. While the restaurant segment for 7M19 recorded a slightly slower growth compared to the other F&B service sub index segments, it has recorded four months of consecutive growth.
See: Singapore's F&B sector in sweet spot to exploit hottest growth opportunities
Apart from the Tsui Wah brand, the group has also opened its first JUMBO Seafood franchise restaurant in South Korea in July. A third NG AH SIO Bak Kut The outlet also opened in Taiwan in June.
Over the next 12 months, the group has plans to continue riding on Tsui Wah’s popularity and open a third outlet in Singapore, a second JUMBO Seafood restaurant in South Korea, as well as one NG AH SIO outlet each in China and Taiwan.
The group’s management noted that performances at the new JUMBO Seafood outlets in Jewel Changi Airport and ION Orchard remain strong, providing a strong foothold fort Singapore operations.
However, operations in China remain weak due to low consumer confidence, spillover effects from the US-China trade tensions and lack of brand awareness.
“Apart from the one-off drag as a result of closure of the outlet at The Riverwalk for renovation that impacted operating margins, 3Q19 results were decent. We expect a better 4Q19 from normalised earnings at the Jumbo Seafood restaurant at the Riverwalk which is now fully operational, as well as contributions from newly-opened Jumbo Seafood outlets at Jewel Changi and ION Orchard,” says Kaur.
As at 3.00pm, shares in Jumbo are trading 2.63% lower at 37 cents, meeting the analyst’s target price. The stock is currently trading at a FY19 price-to-book ratio of 3.5 times, with a dividend yield of 3.4%.
