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This stock has lost its flavour

Samantha Chiew
Samantha Chiew5/18/2020 12:32 PM GMT+08  • 4 min read
This stock has lost its flavour
Analysts have lost their appetite for Jumbo
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SINGAPORE (May 18): Analysts are losing their appetite for Jumbo as this stock has lost its flavour.

On May 14, Jumbo also released its 1H20 results, which saw earnings fall some 71.5% to $2.1 million from $7.4 million in 1H19. Revenue in the same period was down 13.1% y-o-y to $66.7 million.

“The last few months have proved to be the most challenging periods for Jumbo since the group was established 33 years ago,” says group CEO and executive director Ang Kiam Meng, noting that the circuit breaker measure due to the Covid-19 pandemic has caused the business environment to be very challenging.

As it is, ten out of its 16 outlets are temporarily closed. The remaining six outlets are getting by with takeaways and delivers.

On the other hand, Singapore was impacted by the ban of Chinese tourists at the end of January and subsequent social distancing measures as COVID-19 cases increased. High fixed costs from labour and rental expenses resulted in PATMI declining more than the topline.

Ultimately, Jumbo’s 1H20 was saved by a $3 million worth of a Government grant from the Job Support Scheme (JSS).

To conserve cash, Jumbo will not pay an interim dividend. This time last year, it paid 0.5 cent per share.

See: Jumbo Group suffers 71.5% earnings drop

With the outlook for Jumbo looking bleak, RHB Group Research has downgraded its call on Jumbo to “sell” from “neutral” with a slightly lower target price of 19 cents from 20 cents previously.

In a Monday report, analyst Juliana Cai expects sales and profitability in 3Q20 for Jumbo to be adversely impacted by the absence of tourist demand coupled with the ban of on-premise dining.

Although the circuit breaker is expected to be lifted on June 2, but local ministers have said that dining out would take a longer time to resume.

“We expect takeaways and delivery to be less than 20% of normal sales,” says Cai.

Jumbo has implemented a reduction in variable and base salaries, cut down on casual labours and overtime work to reduce its fixed cost. It has also managed to negotiate for some rental waivers for the circuit breaker period. The enhanced JSS for April and May could also provide some relief for the group.

“But, overall, with the major decline in Singapore sales and a slow recovery in China’s footfall, we think 3Q20 might go into losses, before a gradual recovery in 4Q20 when more social distancing restrictions could be eased,” says Cai, who also does not expect any dividends for FY20.

Similarly, CGS-CIMB believes the stock has lost its heat as analyst Ong Khang Chuen has also downgraded his recommendation on Jumbo to “reduce” from “hold” with a lowered target prive of 20 cents from 21.8 cents previously.

“We estimate tourists and business meals account for some 60% of Jumbo’s typical revenue base in Singapore. With local consumer spending also likely to remain cautious under the current macro backdrop, we believe Jumbo’s footfall will take time to recover even after the circuit breaker measures are lifted,” says Ong.

Meanwhile, the decline for Jumbo’s same store sales growth (SSSG) is expected to worsen in April and May by to -80% y-o-y, before showing a slight recovery to -50% in June.

Management also noted that while its China operations are seeing signs of recovery, footfall remained weak at about 70% of the normal rate in April.

To ease its pain, Jumbo has boosted its online food delivery offerings and promotional activities; implemented cost-saving measures; as well as actively negotiating with landlords to secure rental relief.

“Despite active cost-saving measures and government relief programme, we forecast Jumbo to record a net loss of $2.8 million in FY20. With our lower SSSG assumption, we also cut our FY21-22 EPS by 7-39%,” says Ong.

As at 12.30pm, shares in Jumbo are trading at 25 cents or 2.3 times FY20 book.

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