Thursday, May 25, 2017

Is Jumbo still attractive or it has lost its shine?

Recently, Jumbo group has dropped around 20% from the peak $0.78 to $0.62 per share. Is Jumbo still attractive or it has lost its shine? I believed it is undergoing correction and potential to grow further. Using the calculation method which I learnt from "Gone Fishing with Buffett", I did some calculate to determine a target buying price.

To do this calculation, I use the data from SGX. The return on Asset and return on Equity meets my target. From EBITDA (Earning before interest, Tax, Depreciation and Amortization of a company) /Interest expenses also looks healthy. High ratio is sign of strong cash flows to cover its debt expenses while low ratio will indicate potential cash flow issue.


By using the normalized diluted EPS, I did some calculation for projected EPS for the future.
Using the margin of safety 10% and constant growth of 0.106, Jumbo projected future share price in 5 years would $1.03 and target discounted price would be $0.64.

However, if the growth slow down to around 0.05 while margin of safety remain at 10%, Jumbo projected future share price in 5 years would $0.80 and target discounted price would be $0.50.


Using Swot analysis from the previous posting on jumbo, I did some updates.

Strength
-Popular branding 
Most people remember Jumbo for seafood. In fact, it has other brands under its name like JPOT, Chui Huay Lim Teochew Cusinine, J Cafe, Jumbo catering, Jumbo eShop and one of my favorite: Ng Ah Sio Bak Kut Teh. I even bought quite a number of friends including Korean to Ng Ah Sio bak kut teh and they love it. 
-Strong management


Weakness
-Shortage and high cost of manpower
This is an common issue in service industry which they need to solve. 
-Change in consumer demand
As the world is changing fast, the consumer demand also changes and it is important to take note of this.
-Majority of the income comes from Singapore which would be affected if there is slowdown in Singapore. With the oversea expansion and Franchises, the income would be more diversify.




Opportunities 
-Expansion Growth Plan for 2017 - 2019
They have expanded to China which they are doing well. Recently, Vietnam franchise has just opened. Here is the growth plan for China and our neighbor countries. 

-Online catering/home delivery service
They have partnered with Foodpanda and DELIVEROO for home delivery service which helped to bring additional income. On top of that, they also do retail merchandise. 

-Branding
They can also bring other brands under their name to expand or come out with new brand to capture new market. I think Halal market is another big market for expansion.

Threats
-Change in oversea regulation
Due to expansion oversea, any change in oversea regulation might also affected the company.
-Currency exchange
As they are expanding oversea, there might be some Forex exchange losses.
-Competition from other F&B companies
Managing competition from other F&B companies and they will need to continue innovate to capture and maintain their customers especially bulk of their revenue come from Jumbo seafood.

Recently, I am quite impressed by the food freshness and their service quality when i visited Dempsey Hill outlet to celebrate Mother day. The staff are friendly and patient in explaining the dishes to us. They also paid attention to our needs.

I have entered a few lots of Jumbo as I believe they will continue to do well and furthermore it is also below my target discounted price. Do note that is not a call to buy or sell, please do your own due diligent.