• Jumbo Group's 1HFY20 earnings disappoints on lower footfall and revenue in Singapore and China.
• No interim dividend declared.
• Project S$3.5m net loss for FY20F and cut FY21F earnings by 13%.
• Downgrade to FULLY VALUED, Target Price at S$0.21 based on 18x FY21F PE (from blended FY20-21F previously).

Earnings Disappointment Led by Lower Revenue

• Jumbo Group (SGX:42R) reported 1HFY20 earnings of S$2.1m (-66.3% y-o-y) below expectations. Revenue was S$66.7m (-13.1% y-o-y), with decline driven by lower footfall in both Singapore and China. China’s revenue was S$9m (-35.5% y-o-y), and Singapore’s revenue was S$54.3m (-13.5% y-o-y).
• Headline gross margins declined 1.6ppts to 62.6% due to franchise income booked in 1QFY19. Otherwise, core gross margins remained steady at 62.6% (+0.2ppt) vs 2Q19. EBIT was a loss of S$0.4m vs S$7.9m last year as a result of much lower revenue but stable operating costs.
• There were government grants totaling S$3.3m of which S$3m was from the Jobs Support Scheme and S$0.3m from the wage credit scheme. Without these grants, core net loss would have been S$1.2m.
• No interim dividend was declared vs 0.5 Scts paid out last year.

Current Run Rate Appears to be Very Poor

• Jumbo Group’s S$2.1m net profit was for the period between October 2019 and March 2020. 1HFY20 revenue and earnings would have included a more robust 1QFY20 performance compared to 2Q20 when tourist arrivals to Singapore plummeted in February and March, followed by the circuit breaker measures.
• The S$2.1m profit also includes S$3.3m of government support. Hence, for 1HFY20 to record a core loss of S$1.2m, 2QFY20’s performance must have been much weaker than 1QFY20, with the biggest earnings drag taking place in March.
• April and May would be weaker with Jumbo closing 10 of 16 outlets for the Circuit Breaker since 7 April 2020. Jumbo Seafood restaurants at Jewel, Dempsey and Riverwalk remain open, along with Zui Yu Xuan Teochew Cuisine, Ng Ah Sio Bak Kut Teh at Rangoon Road and Tsui Wah at Hereen.

Poor Singapore Tourist Arrivals Will Take Its Toll on Footfall Going Forward

• Singapore tourist arrivals continues to be weak. Both Singapore’s tourist arrivals and Changi’s passenger arrivals have declined dramatically from February 2020 by close to 90% y-o-y. This has a knock-on effect on Jumbo Group whose revenue depends a lot on tourists.
• In April, Changi also announced the closure of Terminal 2 for 18 months from 1 May 2020 till November 2021 to save costs due to poor air traffic and for upgrading works. We estimate Terminal 2’s annual capacity to be 20-25 million passengers and the closure is an indication of low throughput expected at Changi. Terminal 4 will also be closed from 16 May as well.

We Do Not Expect Jumbo to Recover Very Soon

• Chinese New Year sales traction was weak. We expect worse for Mother’s Day celebrations as well. Since Jumbo Group mainly operates higher end restaurants and is exposed to tourists, we expect it to be a laggard in the recovery of the F&B Foodservice sector.
• Jumbo Group would take an even longer time to recover, assuming a slow and gradual recovery scenario for F&B Foodservice sector given that dining at Jumbo Group is very much a social activity.

Project Net Loss for FY20F and Cut 21F Earnings by 13%

• Given its current revenue run rate which we estimate to be below 20% of normal operations and a slow recovery scenario, we turn more negative on our earnings projection.
• We now expect Jumbo Group's FY20F to record a loss of S$3.5m with FY21F earnings reduced to S$7.4m. We reduce revenue projections further on lower footfall and lower margin on largely fixed operating costs. Additional government grants of S$3m for 2HFY20 and 1QFY21 are also factored in to cushion the impact of weak earnings.

Downgrade to FULLY VALUED, Target Price S$0.21

• Jumbo Group is now trading at 21.1x FY21F PE, above peer average of 18x. Our Target Price is now lower at S$0.21, pegged to 18x FY21F PE (rolling over from blended FY20-21F PE previously) in line with peers.
• We believe in this environment of slower growth, a sub 20x target PE would be more reasonable.
• We see Jumbo Group Share Price lagging the market even when the current pandemic blows over due to its strong exposure to tourists. We will turn positive when we see signs of an earnings

Source: DBS Research - 15 May 2020