Jumbo Group: UOB Kay Hian has initiated coverage on the restaurant operator, with a Buy call and TP of $0.49, guiding that as the group expands its operations in China, investors will be able to look towards stronger earnings growth and cashflow generation.
Jumbo is expected to continue riding on its strong brand name, which has long been a household name in the local F&B scene, as well being wildly popular amongst the international community, adding that Tripadvisor listed the restaurant as one of the 50 iconic attractions to visit for SG50.
Cost structure of Jumbo is also seen to be more stable, given that it does not rely on “impulse foot traffic”, and all of its outlets are not located at shopping centres, which could make the group susceptible to rental increases. Jumbo also has a central kitchen and utilizes technological upgrades e.g. ipads, which has aided in managing costs.
The group generated strong free cashflows of $4m-$13m between FY12-14, and the trend is expected to continue given that most sale transactions are on a cash basis, with extended credit terms to corporate clients making up less than 1% to total sales.
China is expected to be a new growth avenue for the group, with its first store at iAPM, Shanghai, being ranked as one of the top five restaurants in the mall by customers. The group is set to open its third outlet in Shanghai by Jan ’16, with plans to increase its outlets to 10 over the next three to five years.
At the current price, the group trades at 16.7x forward P/E.