• Maintain BUY with unchanged Target Price of SGD0.47, 26% upside, 4% yield.
• JUMBO GROUP LIMITED (SGX:42R)'s 3QFY19 (Sep) PATMI of SGD1.7m was down 25% y-o-y and missed expectations, due largely to the 4-week closure of one of its most popular outlets – Jumbo Seafood Gallery at The Riverwalk – for renovation. As a result, we trim our FY19F earnings by 8% but expect Jumbo Seafood Gallery to see stronger footfall and sales in 4QFY19 post-renovation.

3QFY19 Revenue Was Up Marginally by 1% Y-o-y to SGD36.4m

• Despite the opening of three new restaurants - Jumbo Seafood at Jewel Changi Airport, Zui Yu Xuan and Chao Ting at Far East Square – y-o-y revenue growth remained soft during the quarter due to the closure of JPOT Tampines and Jumbo Seafood at National Service Resort & Country Club.
• In addition, one of its most popular outlets, Jumbo Seafood Gallery at The Riverwalk was closed for a 4-week renovation. We believe y-o-y comparison would normalise next year in the absence of major store closures.

3QFY19 PATMI Was Down 25% Y-o-y to SGD1.7m

• We note that the cost structure of Jumbo Group has not changed significantly from 2QFY19. As such, we attribute the earnings decline to weaker sales given that one of the most profitable stores was closed for renovation. In addition, Zui Yu Xuan, which opened in April this year, is still in its gestation phase.

Earnings to Improve With the Reopening of Jumbo Seafood Gallery

• We expect stronger footfall and sales at Jumbo Seafood Gallery in 4FYQ19 post-renovation. The new Jumbo Seafood outlets that were opened this year (Ion Orchard and Jewel Changi Airport) should continue to ramp up and contribute positively to the bottomline as well.
• Moving ahead, the group expects to open one more Tsui Wah outlet in Singapore, a second Jumbo Seafood restaurant in South Korea and one Ng Ah Sio Bah Kut Teh outlet each in Mainland China and Taiwan.
• Maintain BUY.

Source: RHB Invest Research - 7 Aug 2019