• Jumbo Group has opened a second Tsui Wah (Hong Kong-style “Cha Chaan Teng”) outlet in Singapore, known for its crispy buns served with condensed milk, at The Hereen along Orchard Road. The group plans to open a third outlet in Singapore in the next 12 months.
• F&B industry data remain healthy with F&B service index posting growth of 3.2% y-o-y in 7M19.
• Maintain HOLD and PE-based target price of S$0.37. Suggested entry price: S$0.33.

What’s New

Expanding Tsui Wah brand in Singapore with a second outlet at Orchard Road.

• Riding on the success of JUMBO GROUP LIMITED (SGX:42R)’s maiden Tsui Wah outlet at Clark Quay (launched on 15 Jun 18), Jumbo Group has opened a second outlet on 16 Sep 19. Strategically located at The Hereen in the heart of the iconic Singapore shopping belt, the outlet comprises quick service, alfresco and indoor dining areas with a total seating capacity of 192 and occupies a floor area of over 4,800sf. We estimate per pax spending of S$15 for this Hong Kong-style “Cha Chaan Teng” outlet.
• Jumbo Group plans to open a third Tsui Wah outlet in Singapore in the next 12 months. While we do not expect significant near-term financial impact, we believe the expansion could help improve economies of scale.
• To recap, in Mar 18, Jumbo Group entered into a 49% JV with Tsui Wah Holdings to bring the famous Hong Kong tea restaurant concept to Singapore. Tsui Wah has some 70 outlets in Hong Kong, China and Macao. Both outlets in Singapore are the only two Tsui Wah outlets outside of these regions.

Positive growth in F&B service index.

• The F&B industry remains resilient despite the challenging economic environment with the F&B service index for 7M19 recording a growth of 3.2% y-o-y. While the restaurant segment for 7M19 recorded a slightly slower growth compared to the other F&B service sub index segments, it has recorded four months of consecutive growth (April: 1.5% y-o-y, May: 2.6% y-o-y, June: 5.9% y-o-y, July: 3.9% y-o-y).

Stock Impact

Regional expansion chugging along steadily.

• Jumbo Group's Seafood franchise restaurant in South Korea successfully opened in Jul 19, marking its first expansion in the country. A third NG AH SIO Bak Kuh Teh outlet also opened in Taiwan in Jun 19.
• In addition, plans are underway for Singapore’s third Tsui Wah Hong Kong-styled “Cha Chaan Teng” outlet, a second Jumbo Seafood restaurant in South Korea and one NG AH SIO Bak Kut Teh outlet each in China and Taiwan over the next 12 months.

Singapore operations maintain strong foothold.

• While the China operations remain weak due to low consumer confidence, spillover effects from the US-China trade tensions and lack of brand awareness, management noted that performances at both the newly-opened Jumbo Seafood outlets at Jewel Changi Airport (Apr 19) and ION Orchard (Dec 18) remain strong, providing a strong foothold for Singapore operations.
• In addition, we do not rule out the possibility of stronger contributions from Jumbo Seafood Riverwalk outlet after renovations.

Potential for a better 4QFY19.

• Apart from the one-off drag as a result of closure of the outlet at The Riverwalk for renovation that impacted operating margins, 3QFY19 results were decent. We expect a better 4QFY19 from normalised earnings at the Jumbo Seafood restaurant at the Riverwalk which is now fully operational, as well as contributions from newly-opened Jumbo Seafood outlets at Jewel Changi and ION Orchard.

Earnings Revision / Risk

• No change to our earnings estimates.
• Risks include a slowdown in sales in China and poor reception at new outlets.

Valuation / Recommendation

• Maintain HOLD and target price of S$0.37, pegged to peers' average 2019F PE of 20.0x.
• Suggest entry price is S$0.33.
• See Jumbo Group's share price.

Share Price Catalyst

• Stronger-than-expected performance from new outlets.
• Higher-than-anticipated store openings.
• Franchising deals with regional companies.

Source: UOB Kay Hian Research - 26 Sep 2019