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DBS loses appetite for Jumbo amid Covid-19 restrictions

Samantha Chiew
Samantha Chiew • 3 min read
DBS loses appetite for Jumbo amid Covid-19 restrictions
DBS loses appetite on Jumbo as Covid-19 impacts earnings
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SINGAPORE (Mar 25): DBS is downgrading its recommendation on Jumbo to “hold” from “buy” previously with a lowered target price of 18 cents from 38 cents previously.

In a Wednesday report, lead analyst Alfie Yeo says, “We were sideswiped by the rapid deterioration and severe restriction arising from Covid-19. While share price has taken a severe beating, we believe it could take time for operations to normalise, and we are hence downgrading Jumbo to ‘hold’.”

In Singapore, travel restrictions and social distancing measures are currently in place, while China is experiencing a slowdown. Hence these are expected to deeply impact Jumbo’s FY20 earnings, such that its China business is expected to head back into losses from FY20.

Overall the analyst has slashed the group’s FY20-21 earnings estimates by another 31-58%, factoring in lower revenue traction from Singapore and China, outlet rationalisation, and lower margins on relatively fixed operating costs.

“We see Jumbo as the most exposed of all F&B plays in Singapore to Covid-19. We estimate that more than half of Jumbo Seafood Singapore’s customers are tourists and with restriction on short term visitors to Singapore, this would have a deep implication on its operations,” says Yeo.

Additionally, with social distancing encouraged, discretionary trips to restaurants are expected to reduce in both Singapore and China. These will put pressure on earnings going forward.

On the back of this, Yeo sees shifts in food consumption into supermarkets, and other format outlets and away from restaurant dining during this period, on the back of reduced visits by tourists and locals.

See: Worsening virus outbreak a reason to cash in on these two supermarket stocks: DBS

“We anticipate a lower footfall in view of the wide-spread impact of Covid-19 situation. We now expect a recovery to take place further into the future, leading us to reduce our FY20 revenue forecast to $110 million, representing a 28% y-o-y decline from lower footfall and store rationalisation,” says Yeo.

Meanwhile, the analyst has also factored in lower dividend payout ratio as he believes it will be prudent for the group to conserve cash during this challenging period.

“We believe share price could lag the market if and when the current pandemic blows over. That said, its strong balance sheet and cash position (7 cents per share as of Sep 19 or about 38% of market cap) should see the group weather through this storm,” adds Yeo.

On the other hand, DBS is positive on Koufu in the F&B space, as it operates foodcouts, which are mass market and resilient to downtrading. But it has some 10% of revenue from Macau and its key Rasapura foodcourt at MBS is dependent on tourists.

These may pose earnings risk along with lower capacity at F&B foodservice outlets after social distancing among dine-in customers is now in force.

DBS has a “buy” call on Koufu with a target price of 84 cents.

As at 12.15pm, shares in Jumbo are trading at 20 cents or 1.9 times FY20 book with a dividend yield of 1.7%, while shares in Koufu are trading at 58 cents.

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