■ Targeting to open its sixth Singapore Jumbo Seafood outlet in the near term – we think the outlet may be located in Jewel Changi Airport that is due to open in 2019F.
■ China remains a key growth market, with operating presence in three cities; we expect Jumbo to increase its pace of new outlet openings going forward.
■ It plans to bring Hong Kong’s famous Tsui Wah eatery to Singapore, which we believe would add an additional income stream to the group from FY9/19F onwards.
■ Initiate with Add and a target price of S$0.62, based on 23x CY19F P/E, below its regional peer average (excluding Singapore) of 24.7x.
Strong brand equity known for delicious chilli crabs
Established in 1987, the Jumbo Seafood brand is known for its ‘Singapore Chilli Crab’ and ‘Black Pepper Crab’ dishes that appeal to both locals and tourists in Asia. The group now operates 13 F&B outlets in Singapore and five outlets in the People’s Republic of China (PRC) under five restaurant brands – Jumbo Seafood, JPOT, Ng Ah Sio Bak Kut Teh, Chui Huay Lim Teochew Cuisine and J Café. It has one franchised Jumbo Seafood outlet each in Taiwan and Vietnam as well.
May open sixth Jumbo Seafood outlet in Singapore
With the upcoming 2019F launch of Jewel Changi Airport (a 10-storey complex that will house more than 300 shops and F&B outlets in Changi Airport), we think Jumbo may open a sixth Singapore Jumbo Seafood outlet there, breaking a 10-year hiatus, as the last Singapore outlet in Dempsey Hill was launched in 2008. We think the Jewel outlet could yield S$12m in annual sales by FY20F due to high tourist traffic flow and “novelty effect” that will attract throngs of shoppers and diners to the new retail complex.
Store expansion in Asian region to fuel further growth
We believe that China will remain a key growth market for Jumbo going forward and the pace of new restaurant openings may pick up as Jumbo extends its footprint to other major Chinese cities beyond Shanghai. The group also plans to expand in Taiwan through a franchise agreement inked in Dec 2017, under a JV with Baipin Co (Unlisted). Coupled with its stable F&B business in Singapore, we believe Jumbo’s continued expansion overseas would support our 9.3% revenue CAGR forecast over FY17-20F.
Bringing Hong Kong’s famous Tsui Wah to Singapore
Jumbo also entered into a JV with HK-listed Tsui Wah Holdings (1314 HK, Not Rated) in Mar 2018 to bring Hong Kong’s famous Tsui Wah eatery to Singapore. Known for its ‘Crispy Bun Served with Sweet Condensed Milk’, the first Tsui Wah outlet in Singapore opened its doors in Clarke Quay in Jun 2018. We believe the outlet will do very well in Singapore, like it has in Hong Kong, Macau and China. Further expansion in the country will present an additional income stream for the group in FY19F onwards.
Jumbo is currently trading at 19.2x CY19F P/E. We initiate coverage on Jumbo with an Add rating in in view of its strong earnings growth outlook for FY19F. Our target price of S$0.62 is based on 23x CY19F P/E, below its regional peer average of 24.7x, against a 3-year EPS CAGR of 13.9% (CY17-20F). Potential re-rating catalysts include strongerthan-expected earnings and significant uplift in gross margins. Key downside risks include a slowdown in store sales and cost escalation.
Source : CGSCIMB Research