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Jumbo's rapid expansion may have caused 3Q earnings miss but growth thesis stays intact

Samantha Chiew
Samantha Chiew • 3 min read
Jumbo's rapid expansion may have caused 3Q earnings miss but growth thesis stays intact
SINGAPORE (Aug 13): Jumbo Seafood restaurants serve up Singaporean-style Chinese seafood cuisine that is popular with locals and tourists alike.
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SINGAPORE (Aug 13): Jumbo Seafood restaurants serve up Singaporean-style Chinese seafood cuisine that is popular with locals and tourists alike.

But instead of having them travel all the way to the republic to enjoy chilli crab and drunken prawns, Jumbo has gone to Bangkok, Fuzhou, Ho Chi Minh, Taipei, Taichung and Seoul, bringing the total number of restaurants across Asia to 18.

Apart from managing its signature Jumbo Seafood brand, Jumbo also has Ng Ah Sio Bak Kut Teh, Chui Huay Lim Teochew Cuisine, Zui Yu Xuan Teochew Cuisine and Chao Ting Teochew Pao Fan under its belt. It also operates one Tsui Wah Hong Kong-style “Cha Chaan Teng” in Singapore as a franchisee and manages one Singapore Seafood Republic outlet.

For the 3Q19 period, the group opened a new Jumbo Seafood outlet in Jewel Changi earlier in April, as well as launched two new dining concepts – Zui Yu Xuan and Chao Ting at Far East Square. Additionally, it expanded its footprint in Taiwan with the opening of its third Ng Ah Sio Bak Kut The outlet in Hsinchu City, bringing the total number of outlets in Asia to seven.

Jumbo has also revamped its most popular outlet – Jumbo Seafood Gallery at The Riverwalk – in 3Q19. The outlet was closed for one month for major renovations, but is now fully operational.

In its latest 3Q19 results filing, the group says that it has plans for one more Tsui Wah outlet in Singapore, a second Jumbo Seafood restaurant in South Korea and one Ng Ah Sio outlet each in China and Taiwan in the next 12 months.

To facilitate the group’s expansion plan, it has participated in the Scale-up SG programme by Enterprise Singapore that aims to aid high-growth local companies scale rapidly.

However, the group’s rapid expansion plans have resulted in higher operational costs in 3Q19.


See: Jumbo posts 24.8% drop in 3Q earnings to $1.7 mil amid renovation closure, higher costs on outlet openings

With revenue coming in flattish at $36.4 million due to lack of revenue contribution from Jumbo Seafood Gallery for a month, 3Q19 earnings fell 24.8% to $1.7 million.

Despite the weaker bottomline, RHB Research and DBS Group Research are both keeping their “buy” recommendations on Jumbo with the same target price of 47 cents.

In an Aug 7 report, RHB analyst Juliana Cai notes that Jumbo’s results were dragged down by the one-off renovations at its Riverwalk outlet. Hence, she has trimmed FY19 earnings by 8%, but expects the Riverwalk outlet to see strong footfall and sales in 4Q19 post-renovation.

3Q19 may have seen the opening of three new restaurants in Singapore, but it also saw the closure of JPOT Tampines and Jumbo Seafood at National Service Resort & Country Club.

“We believe y-o-y comparison would normalise next year in the absence of major store closures,” says Cai.

Meanwhile, DBS lead analyst Alfie Yeo has cut his earnings forecast by 11-14% to account for the loss of revenue from the closure of the Riverwalk outlet. Although earnings forecasts were recalibrated lower, Yeo’s investment view for the stock remain intact.

“We see that Singapore operations will continue to do well from the closure of lower-margin stores and opening of higher-end and higher footfall restaurant outlets. We also anticipate that performance of new stores would be strongly led by Jumbo Seafood ION, and Jumbo Seafood Jewel, with Zui Yu Xuan Teochew Cuisine’s performance expected to improve,” says Yeo.

As at 2.45pm, shares in Jumbo are trading at 0.5 cent higher at 38 cents, or 3.5 times FY19 book with a dividend yield of 3.3%, according to DBS’s estimates.

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