SINGAPORE (June 25): CGS-CIMB Securities is initiating coverage on Jumbo Group with an “add” recommendation and target price of 62 cents, which is based on 23 times CY19F earnings, below its regional peer average of 24.7 times against a three-year EPS CAGR of 13.9% for CY17-20F.

This is in view of the group’s strong earnings growth outlook for FY19F, which the research house believes could see Jumbo opening its sixth Singapore outlet at the upcoming Jewel Changi Airport complex.

In a report last Friday, lead analyst Colin Tan estimates that a Jewel outlet for Jumbo could yield about $12 million in annual sales for the group by FY20F due to high tourist traffic flow as well as the “novelty effect” which he expects attract “throngs of shoppers and diners” to the new retail complex.

His projection is based on a presumed seating capacity of 150, and daily sales of $34,000 generated by the outlet assuming average spend of $65 per head.

“With the upcoming 2019F launch of Jewel Changi Airport, we think this is a potential location for the sixth Jumbo Seafood outlet in Singapore, given the superb location that could capture tourists familiar with the Jumbo Seafood brand,” says the analyst.

Going forward, Tan believes China will remain a key growth market for Jumbo with the pace of its new restaurant openings to pick up as the group extends its footprint to other major Chinese cities beyond Shanghai.

Jumbo recently announced the opening of its sixth China outlet in Xi’an under its strategic partnership with Beijing Hualian, and plans to expand in Taiwan through the franchise agreement it inked with Baipin Co. in Dec 2017.  

This, coupled with Jumbo’s business in Singapore, could support CGS-CIMB’s forecast of 9.3% revenue CAGR over FY17-20F, says Tan.

“Jumbo also entered into a JV with HK-listed Tsui Wah Holdings in Mar 2018 to bring Hong Kong’s famous Tsui Wah eatery to Singapore… 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,” he adds.

As at 11:56am, shares in Jumbo are trading 1% higher at 50 cents or 4.82 times FY18F book.