Singapore remains the bright spot
- We think same-store sales for Singapore-based outlets could rise 7% yoy in FY24F, driven by healthy domestic demand and stronger tourist footfall.
- We see yoy decline in FY24F China revenue given 1) consumption softness, and 2) closure of Xi’an outlet, before returning to growth in FY25F.
- We reiterate our Add call with a lower TP of S$0.36, now based on 14x CY25F P/E (in line with regional F&B peers).
Singapore: expecting continued same-store sales growth ahead
After a strong FY23 performance, we forecast FY9/24F Singapore same-store sales to rise 7% yoy due to 1) stronger demand from families and businesses, 2) higher tourist footfall, and 3) price hikes for selected items. Management shared that domestic footfall had exceeded pre-Covid levels (as of end-2023), with all six Jumbo Seafood outlets remaining profitable. We see room for tourism spend (historically formed c.33% of Jumbo’s Singapore revenue) to improve in FY24F, as inbound North Asia tourist volumes ramp-up throughout the year.
China: more time needed for a full recovery
Given ongoing softness in China’s domestic economy, we think Jumbo’s China business could only start to meaningfully recover from 2HFY24 onwards as consumers and corporates turn more budget-conscious in the near-term. The group will be closing one of its Jumbo Seafood outlets in Xi’an, China. We see minor impact to group level revenue (we estimate c.S$0.5m p.a.) as the Xi’an outlet is one of Jumbo’s smallest China outlets (in terms of floor space), and likely contributes relatively less compared to larger outlets in Shanghai and Beijing. We think that the Universal Beijing Resort outlet (opened in 2021) is still in gestation mode given tough Covid policies and lack of tourist footfall. In our view, it will likely need another year to ramp-up to optimal scale. We now expect China revenue to decline 2% yoy in FY24F, before returning to growth in FY25F.
Reiterate Add at a lower TP of S$0.36, now based on 14x CY25F P/E
We think Jumbo can sustain its elevated OPM of c.11% in FY24-25F, as benefits from optimisation of its supply chain (e.g increasing direct imports into Singapore) offsets higher labour costs. We raise our FY24-25F EPS estimates by 15-16% as we bake in 1) stronger Singapore and weaker China revenue growth, and 2) higher OPM assumptions on strong cost controls. We roll forward our valuation base year to CY25F and now peg our TP to 14x CY25F P/E (in line with regional F&B peers), lowered from our previous TP multiple of 20x P/E (based on 1.5 s.d. below 3-year historical mean). Our TP is lowered accordingly to S$0.36. Re-rating catalysts: quicker ramp-up in tourist footfall and improving domestic consumption in China spurring greater restaurant spend. Downside risks: prolonged consumption weakness in China, outlet closures, and recessionary fears spurring consumer downtrading behaviour.
