Following the relaxation of Covid-19 restrictions imposed during the “circuit breaker” period, consumers are out and about again, giving business to restaurants and other F&B outlets. These are good signs that the industry is recovering from its darkest moments during the circuit breaker.
But, this recovery is expected to be gradual as restaurants are not yet operating at their maximum capacity due to safe distancing measures, which puts a cap on the number of consumers at any point in time. With the impending Phase Three starting on Dec 28, eight people will be able to dine together, up from five currently. While this is some way to go before the norm, at the very least, it is something that the F&B industry won’t say no to.
“Whenever there is an opportunity for people to relax [when restrictions are eased], they have done it with great gusto,” says restauranteur Loh Lik Peng, CEO of Unlisted Collection.
“I think in the short term, everyone is impatiently waiting to get out of their little bubble and go out, be it dining or travelling, or whatever they haven’t been able to do this year. So, 2021 is up for a good start, especially if a vaccine is introduced,” he adds.
Meanwhile, Maybank Kim Eng economist Lee Ju Ye expects recovery to be sluggish as long as safe distancing measures remain. “Work-fromhome [WFH] policies, which will likely be a new normal going forward, may also mean that more people will adjust to cooking at home and more frequent food deliveries rather than dining in restaurants,” she tells The Edge Singapore.
Slow cooking
The impact of the restrictions are showing up painfully on some bottomlines. On Nov 26, Jumbo Group reported a loss of $7.8 million for FY2020 ended Sept 30, a sharp swing from earnings of $11.5 million in the preceding year. Revenue in the same period saw a 36.5% y-o-y drop in revenue to $97.6 million, as tourists and corporate diners stayed away. Both its China and Singapore businesses were severely impacted from lockdown measures and the closure of borders. As a result, revenue from its China operations declined by 22.2% y-o-y to $21.2 million, while revenue from Singapore operations decreased y-o-y $56.8 million to $69.7 million.
In FY2019, Jumbo declared a final cash dividend of 0.7 cent per share. But with FY2020 seeing its first-ever loss, no dividend has been declared for FY2020.
“Although recovery, especially in Singapore after the circuit breaker, has been slower than we would like it to be, we remain confident in our industry and our brands,” says Ang Kiam Meng, Jumbo’s Group CEO and executive director, who adds that FY2020 is a year that the group has been furthest away from “business as usual”.
Analysts are remaining cautious. RHB Group Research’s Juliana Cai continues to rate Jumbo “sell” with a 19 cents target price. “Moving into FY2021, we remain pessimistic on the outlook, as the bulk of Jumbo’s businesses are dependent on tourist visits and large-scale gatherings, which are likely to take some time for a full recovery,” she says.
DBS Group Research analyst Alfie Yeo rates the stock “fully valued” as he deems it “overpriced” at current valuations of 27 times FY2021 P/E. “We would turn positive on the stock when visibility for return of mass tourists into Singapore improves,” says Yeo.
Although analysts are bearish on Jumbo, Philip Ng, CEO of Far East Organization (FEO), and his mother Tan Kim Choo are seemingly positive on the stock. On Dec 2, they bought 124,000 Jumbo shares at 32.5 cents each, and have increased their stake in the company to 5.01%. Incidentally, Jumbo has a key outlet at Riverside Point, whose landlord is FEO.
Ramen chain operator Japan Foods Holding also saw a dip in its earnings. For its latest 1HFY2020 earnings ended September, it remained in the black with earnings of $300,000, 80.2% lower than $1.5 million in 1HFY2019. However, that was because of a significant amount of government grants. Revenue was 48.7% lower y-o-y at $18.5 million.
Takahashi Kenichi, executive chairman and CEO of Japan Foods, observes that while business has gradually picked up, it is not running at full capacity yet. “Our earnings have taken a beating, but rather than focusing on what is beyond our control, we have used this lull period to develop new concepts that can be rolled out once business activities pick up,” Kenichi adds. The group has launched its first Halal-certified restaurant, Tokyo Shokudo, which is debuting at Tampines Mall.
Overall, Japan Foods expects the negative economic impact of pandemic to continue for some time to come. As it is, its plans to expand into Japan in a joint venture with Minor Singapore, a subsidiary of Thailand-listed Minor International, has been delayed. But the company is still keen to move ahead with this expansion, pending developments in border controls.
Perhaps with the restaurant business experiencing a downfall, it was an opportune moment for BreadTalk Group to privatise. In February, just as the pandemic was worsening, the company announced its plans to do so, and on June 5, completed its privatisation and delisted from the Singapore Exchange (SGX).
A consortium led by BreadTalk founder and chairman George Quek offered to purchase the remaining 29.47% of the company at 77 cents per share. This represented a premium of 19.4% over BreadTalk’s last traded price of 64.5 cents on Feb 24, when the privatisation offer announcement was made.
Apart from its namesake bakery, the group also has popular restaurant chains such as Din Tai Fung and Song Fa Bak Kut Teh in its portfolio. Before delisting, BreadTalk was already falling in the red, booking a loss of $5.2 million for FY2019, in contrast to earnings of $15.2 million in FY2018.
Tastes like home
On the other hand, not all F&B operators were negatively impacted. Some saw growth as WFH measures caused people to stay closer to the heartlands more often and opt for cheaper food to stay prudent as the economy worsened.
In its latest FY2020 earnings ended September, coffeeshop operator Kimly recorded earnings growth of 25.8% to $25.2 million from $20.1 million the same period a year ago, as revenue saw a slight 1.2% y-o-y increase to $210.8 million.
Kimly’s growth is mainly due to higher contributions from its food retail division and outlet investment business, as well as government grants. However, the increase in revenue is partially offset by higher selling and distribution expenses, administrative expenses and finance cost.
Kimly says it is pleased with the “resilient” showing through the pandemic. “We remain committed to expanding our network of food outlets and food stalls across Singapore via acquisitions of food outlet properties in the heartlands of Singapore with a larger proportion of the population to deepen our market presence as well as expand our outreach through online platforms. This approach is expected to further strengthen our revenue base for future growth and enhance our shareholders’ value,” the company says.
Similarly, food court operator Koufu is a wellliked stock by several analysts. UOB Kay Hian, Phillip Securities and DBS all have “buy” calls on Koufu, despite its 82% fall in earnings for 1HFY2020 ended June to $2.5 million, with a 23.2% y-o-y drop in revenue.
Similar to coffee shops, Koufu’s food courts in public housing estates did rather well during the circuit breaker. That helped to mitigate some of the negative impact from the outlets located in the central areas. Footfalls and revenue in the heartlands have improved some 50% to 60% after the resumption of dine-in services.
In its business update dated Nov 19, Koufu says that it has resumed operation of all outlets, including dine-in services. “Footfalls and revenue of the food courts and coffee shops, especially those located in the heartlands, as well as the R&B tea kiosks and four full-service restaurants, have seen significant improvements after the resumption of dine-in services. However, footfalls at food courts located near offices, downtown areas, tertiary institutions as well as tourist hotspots continue to remain low, although it has also improved over the months since Phase Two started,” says executive chairman and CEO Pang Lim in the announcement.
Koufu expects 2HFY2020 to perform “significantly lower” than the previous year, with a higher impairment loss on property, plant and equipment as well as right-of-use (ROU) assets for FY2020 as compared to FY2019, due to the impact of Covid-19. But on a half-on-half basis, the group expects a significant improvement.
Most restaurants and eateries are offering delivery services for those who rather have food come to them at home. “You can’t be eating restaurant food everyday. It’s too rich and expensive,” says Neo Group founder, chairman and CEO Neo Kah Kiat in a previous interview with The Edge Singapore.
Neo Group is in the business of food catering and reports a three-fold increase in tingkat orders to “nearly 10,000 orders” per day during Singapore’s circuit breaker period. Its tingkat business delivers home-cooked food straight to the customer’s doorstep.
“The tingkat meals are more affordable at about $6 per meal per person, which is the equivalent of a delivery fee for some restaurants,” adds Neo, who is focused on growing the market share of the group’s tingkat business and pursue institutional catering, especially in the childcare and elderly segments, as the company waits for its main market — large-scale events and conferences — to resume.
Through M&As, Neo Group has plans to exert wider yet tighter control over its supply chain. From more than just the catering business, it has since expanded into food manufacturing, supplying fresh produce, logistics, restaurants and even property development.
Looking ahead, Neo hopes to move further upstream, into the agricultural business. But this will have to wait until the Covid-19 pandemic blows over.
In its latest 1HFY2021 ended September, earnings saw a significant 486.5% improvement to $13.6 million, from just $2.3 million last year, supported by government grants and lower overall expenses. This was despite a 3.3% drop in revenue to $88.1 million, mainly due to lower contributions from its supplies and trading, as well as retail businesses.
With business staying resilient, Neo Group has decided to propose an interim dividend of 1.0 cent for this period. In contrast, no dividends were given out in the year-earlier period.
