SINGAPORE (June 21): RHB Research is initiating coverage of Jumbo Group with a “buy” and a target price of $0.47 as the stock is expected to rerate upwards on the back of store openings and an expansion of its franchisee network.
The group’s total turnover has shown an increasing trend - totaling $153 million in FY18, up from $145 million in FY17. Analysts are forecasting a figure of $167 million for FY19F.
Jumbo is one of the leading consumer foodservice retailers in Singapore today. Jumbo Seafood Singapore is the group’s single largest earnings driver, contributing 60% of revenue in FY18.
This year, the group opened two new Jumbo Seafood restaurants at Ion Orchard and Changi Airport Jewel. Given each new outlet typically breaks even in less than six months, the stores are expected to contribute towards the group’s earnings growth for FY19F-20F, says analyst Juliana Cai in a Friday report.
The group also launched two new Teochew cuisine restaurants – Zui Yu Xuan and Chao Ting – in the central business district in April which Cai expects to help diversify Jumbo’s customer base by targeting business dining and the office lunch crowd.
“We expect them to ramp up and break even by next year. Moving into FY20F, the group’s expansion plans include bringing its Ng Ah Sio Bak Kut Teh brand into China and opening more Tsui Wah outlets in Singapore,” says Cai.
Over the last 12 months, the group’s franchisees have expanded another five outlets, bringing the total number of franchised outlets to seven. In addition, its South Korean franchisee is likely to open a new outlet in the upcoming quarter.
Cai adds, “While franchise income is small relative to revenue, we believe it would help to boost FY19F-20F operating margins for Jumbo.”
RHB thinks the stock is undervalued as it is currently trading at 19x FY19F P/E, well below its peer average of 23x and historical average of 25x, despite its superior growth outlook.
“Our DCF valuation further suggests an intrinsic value of $0.47, which puts it at 23x FY19F P/E, in line with the peer average,” says Cai.
As at 3.39pm, shares in Jumbo are trading at 38 cents.
