To The Moon

$JUMBO GROUP LIMITED(42R.SI)$ It has been a while since Jumbo has been under the radar. Before the pandemic, it was struggling with strong competition within the industry, and when the pandemic struck, it suffered months of revenue decline, as dine-in was banned. On Dec 7, SAC Capital has initiated its coverage on Jumbo with a “buy” and a target price of 38 cents. During its 2HFY2022 ended September results, the group registered an 81.3% h-o-h increase in revenue to $6.6 million, bringing net profit to $4.4 million, turning around from a loss of $7.5 million. Gross profit margin is also at its highest at 66.3%, an increase of 3.2 percentage points (ppt) h-o-h, as higher footfall from no cap in the number of diners translates to higher revenue per table. For the FY2022 period, revenue increased by 41.3% y-o-y to $115.6 million, while Ebitda increased 7150% y-o-y to $17.0 million. However, the group still registered a net loss of $0.1 million, which still beats analyst Yeo Peng Joon’s estimate of $5.7 million loss on the back to the tailwind of reopening in Singapore. The group saw revenue increment from its Singapore market across all outlets, as they experienced higher footfall from increased tourist arrivals and the complete removal of dining restrictions since April. China however saw revenue dip due to the country’s ongoing commitment to pursue zero Covid-19 with mass testing, border restrictions and lockdowns. The group’s five new franchise outlets – three in Vietnam, one in China and one in South Korea – contributed to an increase in franchise revenue in FY2022. “Jumbo’s localised strategy of placing its brands in different cities through a franchise model will help boost the top line,” says Yeo. “On a positive note, we think that China’s harsh containment measures are unsustainable and will eventually transit away from it amid rising cases,” adds the analyst, who believes that with China relaxing its measures, locals will be rejuvenated to consume at Jumbo’s restaurants. Tourist arrivals in Singapore (about 817,000) are subpar at 51.6% of pre-covid levels, mainly due to China's (5% of total arrivals from pre-covid of about 23%) border curbs. “With more countries relaxing their border controls and pent-up demand for travelling persisting, we expect more tourists to contribute to F&B consumption in Singapore,” says Yeo. Overall, the analyst remains upbeat on Jumbo’s fundamentals as the group rides on the tailwind of the border reopening and China loosening curbs. Hence, FY2023 net earnings are estimated to increase by 21% to $6.9 million.