Excerpts from analyst's report
Maybank Kim Eng analyst: Gregory Yap
 Photo: CompanyInitiating coverage: BUY to SGD0.58 TP Jumbo’s highly-profitable seafood restaurants and signature crab dishes are much loved in Singapore and now, being successfully exported to China where it has three outlets. With its far bigger market potential and high ROI, there is room to add one new outlet in China a year as new outlets fully recoup investments in just 1-3 years. Jumbo deserves a premium to peers for its uniquely-Singapore brand and product and first-mover advantage in China. We initiate coverage with a BUY and DCF-P/E blended TP of SGD0.58. |
Bringing a uniquely Singapore dish to China
Jumbo’s expansion in China is just beginning. The mainland Chinese have taken to chilli crabs in droves, and we think this expansion will provide years of double-digit growth to come. We project accelerating earnings growth of 9%/11%/20% in FY16E-18E, driving China from a 10% market now to 32% of revenue by FY18E. By our estimates, its China outlets are capable of generating ROI of 32-86% with a relatively short payback period of 1-3 years which reduces risk.
More than just crabs that can travel
Jumbo has demonstrated that it can successfully replicate its seafoodrestaurant business in China. But it has other dining concepts (eg hotpot, Teochew cuisine, bak kut teh) that can be exported overseas as well, not just in China but the rest of South-east Asia. Gross margins for all its brands run in the 40-60% range, and with scale, we see room for upside.
Deserving of a tasty premium
We value Jumbo at SGD0.58 for c.40% potential upside. We use blended P/E and DCF valuations to capture the full value of its mid-term expansion potential. This values Jumbo at 25x FY16E, 22x FY17E and 19x FY18E EPS, a slight premium to its regional peers. Our DCF valuation of SGD0.65 is conservative, assuming a higher-than-usual 10% market return and 1.2x beta for possibly higher risks from its China expansion.
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