4 Stocks This Week (F&B) [20 July 2018] Jumbo; Kimly; Koufu; Tung Lok
On Wednesday, the Singapore Michelin Guide unveiled its Bib Gourmand list for 2018. There were 50 Singapore restaurants and hawkers which made the cut, up from 38 last year, cementing Singapore’s reputation as a food paradise.
The total number of F&B establishments in Singapore has consistently increased over the past 10 years from 4,927 in 2006 to 7,679 in 2016, or 55.8%. This significantly outpaced Singapore’s population growth as during the same period, Singapore’s population rose from 4.4 million to 5.61 million, or 27.5%.
F&B outlets have also been successful in driving higher sales, with operating receipts per square meter rising from $4,726 in 2006 to $7,138 in 2016, or 51%.
However, despite increased sales, many F&B outlets in Singapore continue to be under immense pressure, as nearly 28% of F&B outlets in Singapore close within the first year of operations.
Singapore has continued to tighten regulations hiring foreign workers, a move which is especially challenging for the local F&B industry given its heavy dependence on foreign workers.
To help F&B outlets cope with the labour crunch, the government is actively promoting labour-saving technologies like digital ordering and cashless payments, and setting an ambitious target of getting half of all F&B outlets to use these digital solutions by 2020.
F&B outlets in Singapore also must grapple with the rising costs of rent and raw materials, growing competition and changing consumer patterns.
For this week’s edition of 4 Stocks This Week, we will analyse four home-grown F&B companies listed on the SGX.
Jumbo Group (SGX: 42R)
The Jumbo Group runs a total of 24 restaurants under 6 different brands, including Jumbo Seafood, Ng Ah Sio Bak Kut Teh (NASBKT) and Singapore Seafood Republic.
Jumbo Group announced that its revenue for the quarter ended 31 March 2018 increased by $2.4 million, 6% higher compared to the same quarter last year. However, net profit fell from $6 million to $4.2 million, or 29.7%. This was chiefly driven by higher employees benefit expenses, which increased by 25.8% year-on-year, or $2.7 million.
On 10 July, Jumbo announced that it will have its first Jumbo Seafood branch in Thailand, which is projected to be launched by late 2018. Under its franchise agreement, the restaurant will be run by South Korea’s CJ Seafood, making Thailand Jumbo’s third franchise outpost in the region.
Jumbo previously established franchises in Vietnam and Taiwan in 2016 and 2017 respectively.
On 17 July, Jumbo Group announced that it had entered into another franchise agreement with Taiwan-based Ho Sing Food, which will see Ho Sing Food establish and operate Ng Ah Sio Bak Kut Teh restaurants in Taiwan. Ho Sing has committed to opening at least 20 outlets in Taiwan.
However, investors were unmoved by these expansion plans. Jumbo’s share price is down 5.1% year-to-date (YTD).
With a market cap of $356.2 million, Jumbo’s share price closed at $0.55 this week.
Kimly Limited (SGX: 1D0)
Kimly Group is a coffeeshop operator which manages the operations of 63 F&B outlets and 113 food stalls in Singapore.
In the second quarter ended 31 March 2018, Kimly reported that its revenue had risen by $1.8 million compared to the same quarter last year, or 3.8%. This was mainly driven by higher contributions from Kimly’s Outlet Management Division and Food Retail Division, helped by an increase in income from sub-leasing of food stalls in Kimly’s coffee shops and food courts.
The absence of one-off listing expenses also reduced administrative expenses by 10.2%, or $3.8 million. This enabled company’s net profit jumped by $915,000, which represented a 20.2% year-on-year increase.
Earlier this month, Kimly bought drinks manufacturer Asian Story Corporation for $16 million in cash. The Asian Story brand currently has a 7.7% market share.
Kimly Group debuted on the SGX in March 2017 at $0.55 per share, or 120% above its Initial Public Offering (IPO) price of $0.25 per share. Since then, its stock market performance has taken a turn for the worst. Kimly’s share price is 37.2% below its opening price, and down 2.8% YTD.
With a market cap of $398.8 million, Kimly’s share price closed at $0.345 this week.
Koufu Group Limited (SGX: VL6)
Koufu is a food court and coffee shop operator with over 50 F&B outlets across Singapore.
On Wednesday, Koufu Group was listed on the SGX for the first time. Koufu priced its IPO price at $0.63 a share, raising net proceeds of $70.5 million.
Prior to its IPO, Koufu’s revenue increased consistently from $198.7 million in 2015 to $216.7 million in 2017, while its net profit grew from $20.6 million in 2015 to $26.8 million in 2017.
Retail investors were enthusiastic about Koufu’s IPO, which resulted in its public offering of 6.33 million shares subscribed by 17 times.
For all the initial excitement, investors quickly lost interest, and the stock closed flat on its first day of trading. This was followed by strong selling pressure on Thursday and Friday, which saw Koufu fall below its IPO price during trading hours.
However, the stock bounced back on Friday, thanks to the efforts by Koufu’s stabilising manager DBS Bank, which purchased 3,371,800 shares on Thursday and 10,687,500 shares on Friday within the $0.615 to $0.63 price range.
With a market cap of $349.8 million, Koufu’s share price closed at $0.63 this week
Tung Lok Restaurants (2000) Ltd (SGX: 540)
Tung Lok Restaurants is a restaurant chain operator based in Singapore. Tung Lok operates over 43 outlets across Asia, including Singapore, Indonesia, Japan, China and Vietnam.
For the financial year ended 31 March 2018, Tung Lok reported that its revenue had increased by $0.7 million to $85.7 million, or 0.8%. Tung Lok said the increase mostly came from higher restaurant and catering sales, especially in the second half of fiscal year 2018.
However, despite higher revenue, Tung Lok ended the year in the red, recording a net loss of $1.4 million for FY 2018 compared to a $0.4 million net profit for FY 2017. This was partially driven by higher manpower costs and additional operating expenses arising from Exceptional Items which amounted to $1.1 million.
Tung Lok has closed three non-performing outlets within the past year, including one in China, and said that the move will better position the company to achieve sustainable growth in revenue and profits.
Moving forward, Tung Lok is hoping to reduce its overexposure to the Singapore market and focus on quick-service restaurants and casual dining concepts to offer greater convenience and more options to customers.
However, investors did not appear to be excited by the company’s plans. The stock has stayed flat YTD.
With a market cap of $59 million, Tunglok’s share price closed at $0.21 this week
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