SINGAPORE (Aug 7): Restaurant operator Jumbo Group saw its earnings fall 24.8% to $1.7 million for the 3Q19 ended June amid operational costs incurred from its new restaurants.
Earnings per share (EPS) remained flat at 0.3 cent per share for 3Q19, unchanged from the same quarter last year.
3Q19 revenue increased marginally by 0.8% to $36.4 million, edging up from $36.1 million a year ago.
In a filing to SGX after market close on Aug 6, the group says its revenue was impacted by a four-week closure of its Riverwalk outlet for renovation, which offset improved contributions from its Singapore operations and franchise income.
Jumbo’s Singapore operations was boosted by the opening three new outlets in Singapore during the quarter: Jumbo Seafood at Jewel Changi Airport, and Zui Yu Xuan Teochew Cuisine and Chao Ting Teochew Pao Fan at Far East Square.
However, the opening of the new restaurants pushed manpower cost up 1.1% to $11.5 million, while operating lease expenses rose 4.3% to $3.6 million.
The group also incurred higher utilities and depreciation expenses over the quarter due to its new outlets. Utilities expenses grew 10.8% to $1.0 million, while depreciation expense jumped 20.7% to $1.4 million in 3Q19.
While Jumbo expects its business to remain stable for the next 12 months, it says cost will continue to pose a challenge for the group amid competition in the industry.
For the nine months ended June 30, revenue increased 0.4% to $113 million while earnings rose 6.2% to $9.1 million.
The group also incurred a loss of $0.3 million for share of results of associates, compared to a profit of $65,000 in 3Q18. This was mainly due to lower performing Jumbo Seafood restaurants in Taiwan.
Looking ahead, the group says it will continue to grow the business through expansion of its network.
The restaurant operator recently opened its first Jumbo Seafood restaurant outlet in South Korea and its third Ng Ah Sio Bak Kut Teh outlet in Taiwan.
Meanwhile, plans are underway for another Hong Kong-styled restaurant in Singapore, a second Jumbo Seafood restaurant in South Korea, as well as one Bah Kut Teh outlet each in China and Taiwan.
In a report on Aug 7, DBS Group Research notes that Jumbo’s results were dragged by the one-off renovations at its Riverwalk outlet. Excluding the impact of the Riverwalk outlet closure, lead analyst Alfie Yeo says 3Q19 earnings would have been in line with expectations.
Yeo is keeping his “buy” call for Jumbo, but cutting its FY19-20 earnings forecast by 11-14% to account for the loss of revenue due to the closure of the Riverwalk outlet.
As a result, he is lowering the target price for the counter to 47 cents, down from 51 cents previously.
“We remain positive on Jumbo," Yeo says. "The stock’s valuation is attractive, trading at 17-19 times forward PE, and offers a decent dividend yield of 3.8% for FY2020.”
As at 11.44am, shares in Jumbo are trading 1 cent lower, or down 2.6%, at 37 cents.
