Jumbo Group Ltd - NUS Investment Society · companies such as Jumbo Group and Breadtalk have opted to invest in central kitchens and automation of parts of the food production process,

Analysts

Lei Yuchong Director, Equity Research [email protected]

Ryan Soh Deputy Director, Equity Research [email protected]

Basic Information Last Closed Price S$0.53 12M Target Price S$0.64 +/- Potential +20.8% Bloomberg Ticker JUMBO SP Equity GICS Sector Consumer Discretionary GICS Sub-Industry Restaurants

1Y Price v Relative Index

Company Description Jumbo Group Ltd is a seafood restaurant group offering multiple brands and dining concepts catering to all consumers. The Company has a presence in Singapore, China, Vietnam and Taiwan.

Key Financials Market Cap S$340.17M Basic Shares O/S 641.83M Free Float 30.1% 52-Wk High-Low S$0.64- S$0.50 Fiscal Year End 30-Sep-18

(S$ M) FY15A FY16A FY17A FY18E Revenue 122.8 136.8 145.1 163.2 Gr Rate (%) 9.2 11.0 6.0 12.5

EBITDA 18.6 22.0 22.4 28.2 Margin (%) 15.2 16.1 15.4 17.3

Net Income 15.2 18.5 17.8 19.0 Margin (%) 10.8 11.5 10.4 11.6

ROA 16.0 18.2 18.1 19.7 ROE 20.4 23.6 22.0 25.3 P/E 20.5 26.0 24.1 18.6 P/B 4.2 6.1 5.3 4.5

Key Executives Tan Cher Liang Independent Chairman Ang Kiam Meng CEO & Executive Director Tay Peng Huat Chief Financial Officer

Sumptuous Seafood Story

We are initiating coverage of Jumbo Group Ltd with a Buy rating and a S$0.64 12M price target.

2Q18 Earnings Review • Revenue increased 6% Yoy to $41.7 million, driven by contributions

from newly opened Jumbo Seafood outlets in China, which commenced operations in 2017

• Net profit declined 27% yoy to $4.2 million, mainly due to higher cost of sales and operating expenses resulting from expansion efforts, which is partially offset by an increase in other income

• Partial decline in gross margin from 63.9% to 63.3% owing to higher seafood costs

Investment Thesis • Chinese market to drive future growth trajectory: We believe

that Jumbo will continue to open one new outlet per year on average in the PRC. We forecast the Group’s Chinese outlets to contribute 37% of revenue by 2022, up from 17.5% in 2017

• Franchise plans yet to be fully priced in: Jumbo has plans for up to 32 franchised outlets in 7 countries. With 3 franchise agreements signed so far and 2 franchised outlets opened, we see ample potential for rapid expansion as management continues inking new franchise contracts overseas

• Regional expansion supported by wide economic moat: Jumbo’s strong and unique branding is associated with authentic Singaporean cuisine and is one that is not easily replicated. Brand equity is further supported by the spill-over effect from tourism to Singapore

• Solid balance sheet lays groundwork for growth: Expansion plans are backed by a sturdy debt-free financial position and strong cashflows stemming from a highly cash-generative business model. Significant insider ownership demonstrates strong alignment of interests with shareholders

Catalysts • Upside surprise in next quarter earnings, given muted earnings over

the past 2 quarters which were weighed by expansion costs • Successful launch of franchise restaurants along with signing of new

franchise agreements with regional partners could trigger upward re-rating

Valuations Our 12-month price target of S$0.64 is derived from a blended DCF and forward-P/E valuation approach, valuing Jumbo at a forward FY18E P/E of 22.5x. This is a slight premium to the industry average – appropriate in our view, given Jumbo’s stronger growth trajectory and branding.

Key Risks • Disruptions to raw materials supply: Dependence on external

suppliers for raw materials, primarily seafood, exposes Jumbo to fluctuations in supply and prices of ingredients

• Local manpower crunch: Labour-intensive F&B industry vulnerable to manpower shortages that could crimp profit margins

• Renminbi depreciation: Jumbo’s increasing exposure to the Chinese market exposes it to currency risk in the event of a sharp depreciation of the RMB

Equity Research Department 9 July 2018

Jumbo Group Ltd Buy: S$0.64 (+20.8%)

mailto:[email protected]

mailto:[email protected]

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Figure 1. Synonymity of the Jumbo brand name with chilli crabs

Source: MoneyDigest Figure 2. Revenue breakdown by brand, FY17

Source: Company Investor Presentation June 2018 Figure 3. Jumbo Group’s stable of F&B brands

Source: Company Figure 4. The first Tsui Wah outlet at Clarke Quay in Singapore

Source: The Business Times

Company Overview Established in 1987 with its first Jumbo Seafood outlet at East Coast Seafood Centre, Jumbo Group has grown from strength to strength into an established regional F&B brand. Synonymous with its famous chilli crabs that are popular with locals and tourists alike, Jumbo Group’s stable of F&B establishments comprises 5 brands - Jumbo Seafood, Ng Ah Sio Bak Kut Teh, JPOT, Chui Huay Lim Teochew Cuisine and J Cafe, with a total of 14 outlets in Singapore. The Group debuted on the Catalist board following its November 2015 IPO. Faced with limited growth in the domestic market, Jumbo Group has embarked on a regional expansion effort, beginning with its maiden foray into China with the opening of the first Jumbo Seafood restaurant in Shanghai in 2013. The Group has since continued to pursue expansion into the Chinese market, establishing 5 more outlets, with the latest outlet in Xi’an beginning operations in May 2018. The Group has also set its sights on other regional markets, having already inked franchise agreements with regional partners to establish Jumbo Seafood outlets in Vietnam, Taiwan and Thailand, with plans to franchise outlets in several other countries in the region. At home, the Group continues to focus on nurturing its portfolio of brands focused on local cuisine, opening its fourth Ng Ah Sio Bak Kut Teh outlet in Resorts World Sentosa in 2016. It also seeks opportunities to introduce foreign F&B concepts to Singapore, the latest being a partnership with Tsui Wah Holdings in a 49:51 JV to expand the Hong Kong-style casual tea restaurant (“Cha Chaan Teng”) concept under the Tsui Wah brand, with the first outlet opening at Clarke Quay in June 2018. Figure 5. Jumbo Group’s directly-managed outlets

Sources: Company Presentations, Company Annual Reports 2Q18 Earnings Review

• Revenue grew 6.0% yoy to $41.7m (2Q17: $39.4m), driven by contributions from newly opened Jumbo Seafood outlets in Beijing and Shanghai which started operations in July and November 2017 respectively

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Figure 6. Singapore GDP per Capita growth, 2013 to 2017

Source: TradingEconomics Figure 7. Total tourism receipts and tourist F&B expenditure for Singapore, 2008-2017

Source: Singapore Tourism Board Figure 8. Tourist arrivals from countries in Jumbo’s expansion pipeline

Source: Singapore Tourism Board Figure 9. Food industry Business Cost breakdown

Source: Department of Statistics, Singapore

• Cost of sales increased 7.8% yoy to $15.3 million, with gross margins declining to 63.3% (2Q17: 63.9%) owing to higher seafood costs

• Operating expenses increased 18% yoy to $22.7m in line with expansion efforts, mainly attributed to staff costs increasing 26% due to rising manpower needs in Singapore and China

• Operating profit declined 26.7% yoy to $5.0m and operating margins fell to 12% (2Q17: 13%)

• Net profit declined 27% yoy to $4.2 million on the back of higher cost of sales and expansion costs, partially offset by an increase in other income

Industry Outlook Rising disposal incomes fuel Singaporeans’ food obsession amidst stiff industry competition in “Food Paradise” With one of the highest GDP per capita in Asia at US$55,235 in 2017, the Singaporean obsession with food can be attributed to high levels of disposal incomes. Boasting a vibrant F&B landscape with cuisine offerings from the world over, compounded by hectic lifestyles and a fast pace of life, time-strapped Singaporeans spent up to a total of S$9.02bn each year on eating out, with restaurants taking a 37.5% (S$3.38bn) of operating receipts. This looks set to continue as disposal incomes rise alongside a growing economy. The island’s position as a tourism hub has attracted numerous overseas F&B retailers to set up shop, leveraging on its strategic location to increase exposure to a global consumer base while enjoying stable sales owing to Singaporeans’ high purchasing power. This has intensified competition within the industry, with F&B players competing for the consumer dollar by offering novel new dining concepts. Tourism boom to fuel spending on F&B and expose foreigners to local brands Tourist arrivals have grown at a CAGR of 2.9% since 2013 to hit 17.4m in 2017 and have grown 6.7% yoy for Jan-Apr 2018. F&B tourism receipts have remained stable at ~10% of total tourism receipts, increasing at a CAGR of 5.9% from S$1.6bn in 2008 to S$2.7bn in 2017, in line with rising visitor numbers. According to the MasterCard Global Destination Cities Index for 2016, Singapore emerged top among 132 cities in terms of tourism spending, with tourism receipts reaching US$15.7 billion, and emerged 2nd among in terms of number of visitors. Singapore’s international standing is expected be boosted by the occurrence of major key events such as the Trump-Kim Summit, alongside the government’s push to boost Singapore’s position as a tourism hub with its airport expansion plans and efforts to rejuvenate Orchard Road, Singapore’s key shopping belt. Enhanced international recognition is expected to attract corporate travellers and tourists alike to Singapore, providing further upside to the tourism industry, with expected trickle-down effects on F&B industry. Key headwinds in tight labour market and high rents Labour remains a key component in the F&B industry, accounting for 29.3% of industry operating expenditure in 2016.

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Figure 10: Summary of Food Industry Transformation Map

Source: The Straits Times Figure 11. Chinese disposal income and food expenditure, 2016 to 2022

Source: TradingEconomics Figure 12. Porter’s 5 forces

Source, NUS Investment Society Estimates

However, finding locals willing to work in the F&B industry remains an uphill task, forcing F&B companies to pay higher salaries and rely on foreign labour to make up for the shortfall. The Singapore government has mandated F&B businesses to hire at least 6 local employees before they can hire 1well foreign employee. Businesses also incur foreign worker levies of SG$300-600 per head. This has increased the cost of labour and put pressure on the industry’s margins. The Food Services Industry Transformation Map was introduced in response to the labour crunch, encouraging adoption of technology and providing skills-upgrading programmes. Under these schemes, companies such as Jumbo Group and Breadtalk have opted to invest in central kitchens and automation of parts of the food production process, resulting in cost and manpower savings while improving operating efficiency. Attractive growth opportunities in Chinese F&B With a consumer base of more than 1.3 billion people rapidly gaining affluence, the humongous Chinese market offers much potential for F&B expansion. According to Euromonitor, Chinese disposable income has grown at a CAGR of 6.8% from 2012 to 2017. Expenditure on food has also increased along with income, growing at a CAGR of 5.4% from 2012-2017. The increased expenditure has clearly benefited the F&B industry in China, with sales in fill service restaurants growing 7% to hit CNY3.3 trillion in 2017. This trend is expected to continue as Chinese disposal incomes are forecast to grow at a CAGR of 5.8% from 2017 to 2022.

Porter’s 5 forces Threat of Substitutes - Low The Jumbo brand name is nearly synonymous with authentic Singaporean cuisine in key markets such as China. Even though copycat food outlets serving the same cuisine have already sprung up, Jumbo’s well-established and unique brand image gives it a formidable economic moat and its restaurants continue to attract customers. Having established its first outlet in Singapore 31 years ago, the strong branding also retains to a loyal local customer base. Bargaining Power of Suppliers - Low Jumbo’s suppliers of raw materials, primarily seafood, originate from across Southeast Asia, such as Indonesia and The Philippines, where the industry is fragmented with numerous suppliers. Prices are established by market forces and individual suppliers are unable to significantly influence prices nor control a large market share. Threat of New Entrants - Low Although the industry has low barriers to entry, new entrants require large capital investments to match Jumbo’s scale of operations. New entrants also have to vie for manpower in a tight labour market and fork out high rents to secure outlets in strategic locations. Building up a brand image and industry reputation to rival Jumbo’s would also require copious resources and time. New entrants are therefore unlikely to gain significant market share in the short term. Competition Within the Industry - High Patrons are spoilt for choice given the F&B industry’s diverse variety of cuisines. Industry players often resort to offering innovative food products that cater to consumers’ specific preferences. Major established players have nurtured their niches within the space and have become famous for their speciality cuisine.

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Figure 13. Notable restaurant brands in Singapore serving similar cuisine

Source: NUS Investment Society Figure 14. No Signboard Seafood is Jumbo’s closest competitor albeit with weaker branding

Source: No Signboard Seafood Figure 15: Jumbo’s expansion plans in the PRC

Source: Company Presentation June 2018 Figure 16. Substantial revenue contribution from PRC outlets by 2020

Source: Company, NUS Investment Society Estimates

As novel ideas constantly emerge in the F&B industry, Jumbo has to constantly innovate to better cater to customers’ needs, while pursuing a diversification strategy by developing other brands in its stable. Bargaining Power of Buyers - Medium With its namesake nearly synonymous with chilli crab, a national dish in Singapore, Jumbo has the upper hand in terms of pricing power. However, with other industry players such as No Signboard seafood offering similar F&B experiences, alternatives confer consumers a degree of bargaining power as well.

SWOT Analysis Strengths

• Strong branding confers a formidable economic moat • Diverse range of brands and cuisine cater to differing

consumer preferences • Synergies between Jumbo’s expansion plans and

Singapore’s position globally as a leading travel destination

Weaknesses • Dependence on external suppliers and susceptibility to

supply chain disruptions • Reliance on labour which is facing a supply crunch in

Singapore

Opportunities • Leveraging on brand equity to tap on large overseas market

through high-margin franchises

Threats • Foreign F&B entrants with novel dining concepts into the

local F&B scene to vie for the same consumer dollar • Economic slowdown, especially in China, could see

consumers tighten their purse strings and reduce spending at premium F&B destinations

Investment Thesis

1. Chinese market to set trajectory for growth Steady growth momentum in China - Jumbo’s current pace of opening at least one Jumbo Seafood outlet per year in the PRC looks set to continue in the foreseeable future. Aggressive expansion plans are focused on China, with a total of 6 outlets in the major cities of Shanghai (4), Beijing (1) and Xi’an (1) at present. New Jumbo Seafood outlets in other Chinese cities - Revenue contribution from the PRC jumped to 26% in FY17 from just 8.5% two years prior; We forecast revenue from Chinese outlets to contribute 32% of total revenue by FY20, with 3 new PRC outlets opened within this time. Management has identified possible new outlets in Shanghai and Beijing that could be operational within 2 years. Large middle and upper-class population in Chinese cities continue to be attractive for expansion. Tier-1 cities of Guangzhou and Shenzhen are still untapped, with potential JVs or franchises in Tier-2 cities, such as Tianjin, Chongqing and Xiamen, in the pipeline. Chinese market offers growth potential - According to IBISWorld, revenue for full service restaurants in China hit US$441 billion in 2017 and grew at a CAGR of 10.6% from 2012-2017. Having established a reputable brand name in China due to its high exposure

Geographical Region FY16A FY17A FY18E FY19E FY20E

Singapore 85% 82% 76% 72% 71%

China 15% 18% 24% 28% 29%

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Figure 17. Self-managed outlet growth to be driven primarily by new PRC outlets

Source: Company, NUS Investment Society Estimates Figure 18. Management’s guidance on countries and territories with potential for franchising

Source: Company Presentation June 2018 Figure 19. Expected rapid expansion through the franchise model

Source: Company, NUS Investment Society Estimates Figure 20. Jumbo Seafood’s recent accolades

Source: Company

to Chinese tourists in Singapore and its now five-year presence in major Chinese cities, coupled with the burgeoning middle-class Chinese urban population continuing to grow over the long term, Jumbo’s timely expansion is well-positioned to capture the increase in Chinese consumer F&B spending and its shift toward increasingly seeking out high-quality international flavours.

2. Franchise plans yet to be fully priced in Jumbo is further pursuing its regional expansion for its Jumbo Seafood brand through franchise agreements with reputable companies possessing operating expertise in target countries. Its recent foray into Taiwan is through a JV and franchise agreement with Baipin Co. Ltd, the company which brought renowned regional brands like “Tim Ho Wan” into Taiwan. Attractive business model through franchising - Jumbo will earn a one-off franchising fee followed by recurring royalties, which is a percentage of the franchisee’s revenue. We believe the franchise model will yield attractive returns for Jumbo as it taps on the expertise of local business partners, and through strategic selection of countries that will be receptive to Singaporean cuisine. Strong branding a cornerstone for success overseas - Leveraging on Jumbo’s strong branding, the low capital requirements and scalability of such a business model also allows for quicker overseas expansion with greatly reduced capital risks, while providing greater recurring income visibility through contractual agreements with reputable companies with relevant industry expertise. Visible expansion plans with potential for upside surprise - Management has unveiled plans for 2-4 franchised outlets in 7 potential countries and territories, 3 of such (Vietnam, Taiwan and Thailand) franchise agreements with local business partners have already been inked in the last 2 years. Current franchise agreements in Vietnam and Taiwan have envisaged the opening of 8-10 outlets within the next 10 years, which translates into approximately 1 new outlet per year per country. We expect an average of 5 franchised outlets to be opened each year for the next 5 years, with 1 new franchise contract inked every year on aggregate, continuing the current expansion momentum. While there is strong visibility in the Group’s expansion plans, we contend that the market is underappreciating the pace of its rapid expansion through franchising and its potential to lift the bottom line due to recent bottom line pressure due to higher start-up costs incurred for new PRC outlets. The low-risk and high potential-return franchise model allows Jumbo to reap a high return on investment with minimal resource commitments. We opine that this opens the door to upside surprises. This potential shot in the arm to both profit margins and bottom line growth has not been priced in by the market.

3. Local and regional expansion underpinned by wide economic moat

Impeccable industry recognition confers strong brand equity - While its menu is not solely restricted to seafood, Jumbo Seafood’s brand name is most strongly associated with Chilli Crab, an iconic Singaporean national dish, which is reinforced by strong emphasis on food and service quality, alongside its branding and marketing strategies. Testament to its strong branding and impeccable service, Jumbo Seafood has received many accolades, favourable reviews and awards from the likes of gourmet lifestyle magazines and food review sites,

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Figure 21. Jumbo Seafood local outlet count and revenue growth projections

Source: Company, NUS Investment Society Estimates Figure 22. Jumbo Seafood’s high approval rating on TripAdvisor is testament to its strong branding

Source: TripAdvisor Figure 23. Jumbo Seafood’s The Riverwalk outlet is rated 5/5 by Chinese tourists on Dianping, with an average spend per pax of RMB504 (SGD100)

Source: Dianping Figure 24. Photo of Ng Ah Sio Bak Kut Teh’s Rangoon Road outlet published on a Taiwanese food and travel review blog

Source: flower32077 Pixnet

such as the TripAdvisor Certificate of Excellence in 2017 and obtaining the position of Finalist for AsiaOne People’s Choice Awards 2016. We contend that many of its competitors lack the robust brand image enjoyed by Jumbo, thus conferring it the competitive advantage that sets it head and shoulders above the competition as it furthers its regional expansion. Highly-acclaimed amongst tourists and locals alike - A check with TripAdvisor reveals that Jumbo Seafood’s Riverside outlet received a 4/5 rating, with 72% of reviewers giving at least a “Very Good” rating. As this is one of the local outlets that tourists are more likely to visit, we contend that it reflects the positive impressions left on them. Jumbo also has a loyal following of over 48,000 customers under the Jumbo Rewards customer loyalty programme, which seeks to encourage repeat patronage and attract new customers. These factors demonstrate Jumbo’s ability to leverage on its economic moat to generate a loyal customer following from around the world, supporting its regional expansion efforts. Riding on its strong foothold in seafood locally and increasing brand recognition from tourists, we foresee the Group establishing 2 new Jumbo Seafood restaurants locally over the next 5 years, one of which could be located at the soon-to-be-completed Jewel Changi Airport, which allows grants Jumbo an exposure to the 60+ million passengers that Changi Airport handles yearly. Leveraging on branding for regional expansion – As a regional tourism and corporate travel hub, Singapore is frequented by tourists throughout Asia. The success of Jumbo Seafood in China thus far can be attributed to its high visibility and exposure to Chinese tourists in Singapore. This is reinforced by impeccable food and service quality that has left a formidable impression on Chinese tourists, as evidenced by the very high rating (5 out of 5 stars) the nearly all Singapore outlets received on Dianping.com, China’s largest website for location-based food and entertainment services. Chinese tourists are also willing to spend more when they dine at Jumbo Seafood as compared to locals ($91 average spend per pax across all local outlets for Chinese tourists vs $70 for locals). We believe that Jumbo will be able to replicate its success in establishing a formidable brand name in China with a similar strategy for its franchised outlets. Tourist arrivals from countries that are part of Jumbo’s expansion plans have shown robust growth, with those from target countries China, Vietnam and Taiwan growing at a CAGR of 9.2%, 8.7% and 3.1% respectively from 2013 to 2017. We believe this trend will greatly aid Jumbo’s regional expansion plans as more travellers will gain exposure to the Jumbo brand name, encouraging patronage at Jumbo Seafood outlets when they return home.

4. Harnessing the untapped potential of Ng Ah Sio Bak Kut Teh Potential in renowned and highly-acclaimed pork ribs – As the Group’s second-largest brand by outlet count, Ng Ah Sio Bak Kut Teh boasts a litany of famous celebrities and politicians as patrons, including Taiwan’s former President Ma Ying Jeou. We believe that management is likely to capitalise on untapped brand potential stemming from Ng Ah Sio’s high-profile exposure on the international stage. While current franchise plans solely pertain to Jumbo Seafood, management is likely also exploring opportunities to franchise its Ng Ah Sio Bak Kut Teh outlets in Taiwan given Ng Ah Sio’s appearances

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Figure 25. Ng Ah Sio Bak Kut Teh local outlet count and revenue growth projections

Source: Company, NUS Investment Society Estimates Figure 26. Jumbo Group’s top 5 shareholders

Source: 4Traders Figure 27. Key Management

Source: Company Annual Reports Figure 28. Jumbo Group’s projected ROE, ROA and ROIC trend


on numerous Taiwanese food blogs, with generally positive reviews thus far. Chinese cities could also be considered given the number of reviews for the brand on Dianping.com. However, given the lack of information provided by management regarding plans for Ng Ah Sio, we have left its potential franchising out of our financial projections. Nonetheless, we believe that a new local outlet could be operational within 2 years and we are projecting higher sales for the Ng Ah Sio brand as the Group seeks to further develop its potential and nurture brand equity over the foreseeable future.

5. Solid balance sheet lays groundwork for growth, reaffirmed by large insider ownership Robust balance sheet with no debt obligations at present – Cash constitutes ~60% of total assets, providing ample liquidity to tap on should its expansion plans in China require, while also doubling as a safety net as the Group embarks on its ambitious regional expansion. With a historically negative cash conversion cycle, the business is eminently highly cash-generative. We expect this trend to persist, projecting strong operating and free cash flows for our forecast period to support Jumbo’s ambitious growth efforts. Heavy insider ownership demonstrating alignment of interests with shareholders – Mr Ang Hong Nam, the founder of Jumbo, has a 1.6% direct stake and owns 45.5% through a holding company, JBO Pte Ltd. His son, Mr Ang Kiam Meng owns 1.6% of Jumbo Group Limited. The junior Mr Ang is also the Group’s CEO. Besides mitigating the principal-agent conflict, strong insider ownership is also a strong indication of management’s beliefs in the company’s growth potential.

Catalysts • Upside surprise in next quarter earnings from on

contributions from franchised outlets • Successful launch of franchise restaurants along with inking

of new franchise agreements with regional partners could trigger upward re-rating

Financial Analysis

Overview:

The financial condition chart above shows our expectations for Jumbo 5 years forward, which are reflective of our assumptions (refer to appendix for details).

Shareholder Stake (%)

JBO Holdings Pte Ltd 45.5%

Sim Chye Hock 10.0%

Tan Gee Jian 6.6%

Ang Hon Nam 3.4%

See Boon Huat 1.7%

Ang Kiam Meng - Group CEO and Executive Director

Tan Yong Chuan, Jacqueline - Executive Director

Ron Sim Chye Hock - Director

Son of Group founder Ang Hon Nam. With the Group for

more than 25 years since 1993. Responsible for the overall

management, operations, strategic planning, and business

development of the Group.

Spouse of CEO Ang Kiam Meng. Oversees the

procurement and purchasing functions, merchandising and

pricing strategies, as well as customer engagement.

Founded OSIM in 1979 and has been instrumental in

building it into the global brand it is today. Also Vice

Chairman and Non-Independent Non-Executive Director of

SGX-listed Perennial Real Estate Holdings Limited.

Jumbo Group - Key Management

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Figure 29. Extended DuPont Analysis

Source: NUS Investment Society Estimates Figure 30. Substantial EBITDA growth backed by steady EBITDA margins

Source: Company, NUS Investment Society Estimates Figure 31. Projected EBITDA, Net Profit and FCFF

Source: Company, NUS Investment Society Estimates Figure 32. Earnings growth to provide impetus for increasing dividends


New PRC outlets and franchise income to drive EBITDA growth We expect income from new PRC outlets and franchised outlets in countries including Vietnam, Taiwan and Thailand to drive growth. Operating synergies realized through greater economies of scale in China and the low capital requirement franchise model, coupled with management’s efforts to improve operating efficiency through automation efforts, would result in wider EBITDA margins going forward. Highly cash-generative business model to continue delivering strong free cash flow We expect the Group’s cash conversion cycle remain negative, meaning that the firm is getting paid by customers long before they pay their suppliers. This translates into excellent cash flow generation ability and we are forecasting steady free cash flow generation into he foreseeable future. Earnings growth to actuate dividend increases We are forecasting dividends per share of 1.9 cents/share and 2.4 cents/share for FY18 and FY19 respectively (FY17: 1.7 cents), translating into a dividend yield of 3.6%, assuming a payout ratio of 65% for FY18. Profitability The Group has managed to hold steady its expenses margins since going public. We have assumed such margins to be maintained in our financial projections. We have also projected stronger ROE and ROA, reflecting the shift toward the low capital intensity franchise model that would generated better returns for the Group. Leverage Owing to its strong cashflow generation and ample cash on hand, we do not foresee the Group taking on any long-term debt. This also frees Jumbo from any interest burden.

Ratio 2018E

Tax Burden 0.83

Interest Burden 1.00

Operating Margin 0.14

Total Asset Turnover 1.68

Equity Multiplier 1.28Return on Equity 0.244

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Valuations 12M Price Target: S$0.64

Figure 33. WACC build-up

Source: Bloomberg, NUS Investment Society Estimates Figure 34. Blended equity risk premium

Source: NUS Investment Society Estimates

DCF Model A discounted cash flow analysis was used to estimate the intrinsic value of Jumbo’s share price, given its track record of strong free cash flow generation and the recurring nature of revenue. The primary model is forecasted over 5 years, taking into account the Group’s expansion plans both locally and overseas. The model is driven by revenue projections based on industry projections and research. On the cost front, working capital, COGS, SG&A and Capex serve as good parameters for projections, given the historical consistency of their margins. Three cases were formulated, with the base case derived from historical performance, management guidance and our industry outlook. The DCF model used to derive our target price is based on our base case projections, from which a target price of S$0.64 was derived. Revenue Projections A bottom-up approach was taken to estimate Jumbo Group’s revenue taking into account its expansion plans, with key drivers being (1) average spend per pax for each brand, (2) yoy growth in average patron expenditure, (3) average daily table turns per brand and (4) growth in number of outlets per brand. Weighted Average Cost of Capital (WACC) Since the Group is currently debt-free, unlevered beta was calculated by linear regression of Jumbo Group’s stock price against the Nikko AM Straits Times Index ETF for the last 500 trading days. Equity risk premium was calculated using a blended approach, taking into account Jumbo’s revenue streams from both Singapore and China. CAPM was then used to estimate the Cost of Equity, using the present Singapore 10-year bond yield as the risk-free rate. Cost of debt was taken to be zero since the Group had no debt at present.

Cost of Equity 8.3%

Risk-free rate 2.44%

Beta 0.740

Equity risk premium 8.0%

Cost of Debt 0.0%

Pre-tax cost of debt 0%

Tax rate 17%

Market cap (S$ '000) 339,986

Total debt (S$ '000) -

WACC 8.3%

WACC Assumptions

Country Risk Premium FY18E Rev WA RP

Singapore 7.0% 122,260 5.3%

China 11.0% 38,908 2.7%

Equity Risk Premium 8.0%

Equity Risk Premium

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Figure 35. Discounted cash flow valuation

Source: NUS Investment Society Estimates Figure 36. Jumbo vs Peers – Forward P/E and ROE

Source: Bloomberg, NUS Investment Society Estimates Figure 37. Forward PE sensitivity analysis


Terminal Growth The terminal growth rate was taken to be a 2%, reflecting the expected long-term growth of GDP per capita in the countries Jumbo operates in, which we believe consumer incomes and expenditure is directly tied to. While China’s long-term GDP per capita growth is higher than 2%, our input accounts for an increasingly competitive F&B landscape in Asia which we believe will slow growth in the long run. According to our sensitivity analysis, a 0.5% reduction in terminal growth rate would reduce our TP by S$0.03, while the converse would raise the TP by $0.04. Alternative Valuation Methods Supplementing our primary terminal growth-based DCF valuation, we used the exit multiple-based DCF valuation, while achieved an intrinsic value of $0.66, slightly above our terminal growth-based DCF valuation TP of $0.64. On a relative valuation (RV) basis, Jumbo Group is currently trading at a forward P/E of 18.6x according to our projections, against a regional peer average of 20.5x and median of 19.0x. We believe that a +1FY P/E of 22.5x, representing a slight premium above regional peer average, is justified given the Jumbo Group’s stronger branding and comparatively brighter growth prospects, coupled with an excellent track record of executing its growth plans. From our analysis, we believe that our TP of S$0.64 is representative of Jumbo Group’s intrinsic value, a 20.8% premium from its current trading price. We remain confident that this valuation affirms our Buy recommendation on the stock and it validates our view of the upcoming 12-month period. Figure 38. DCF Sensitivity Analysis


Investment Risks Supply Risk (1)

• Jumbo depends on external suppliers for its raw ingredient needs, mainly mud crabs, and supply is subject to seasonal and climate conditions.

• Fluctuations in prices and supply of raw ingredients due to unfavourable climate and rising demand can put pressure on raw ingredient costs and crimp margins.

• Jumbo has minimized this risk by sourcing for their crabs from up to 20 suppliers located in 5 countries, minimising the impact of potential supply disruptions.

Impact: High Probability: Low

Total PV of FCFF 64,919

Long term growth rate 2.0%

Final year FCF 25,259

Terminal value 406,944

PV of terminal value 292,573

Enterprise value 357,493

Less: Debt -

Add: Cash 51,262

Less: Minority interest -

Add: Investment in assoc./JV 550

Implied equity value 409,305

Diluted NOSH 641,483

Implied stock price 0.64$

Total PV of FCFF 64,919

Terminal year EBITDA 46,982

Exit EV/EBITDA 9.0 x

Terminal value 422,840

PV of terminal value 304,002

Enterprise value 368,921

Less: Debt -

Add: Cash 51,262

Less: Minority interest -

Add: Investment in assoc./JV 550

Implied equity value 420,733

Diluted NOSH 641,483

Implied stock price 0.66$

Gordon Growth Method

Exit Multiple Method

Forward P/E Multiple Target Price

32 $0.91

30 $0.86

28 $0.80

26 $0.74

24 $0.68

22.5 $0.64

21 $0.60

19 $0.54

17 $0.48

15 $0.43

13 $0.37

11

Figure 39: Risk matrix

Source: NUS Investment Society Estimates Figure 40: WSQ Training modules for Jumbo Staff

Source: Company Figure 41: Fast Track Programme for Jumbo Staff

Source: Company

Strategic Risk (2)

• Jumbo’s overseas expansion plans hinges on its brand image, which is closely associated with Singapore’s national image

• A political incident involving Singapore that creates negative sentiment toward the Republic could derail Jumbo’s overseas expansion should any form of a boycott be instigated against Singaporean entities overseas

• However, Jumbo’s expansion through franchising across several different countries partially mitigates this risk

Impact: Medium Probability: Low Operational Risk (3) – Food Safety Risk

• Food hygiene is a primary concern in the F&B industry; Lapses in food safety could easily tarnish Jumbo’s reputation, and in extreme cases, result in the revocation of its operating licenses

• Jumbo has minimized such risks through mandating all staff to undergo an intensive Workforce Skills Qualification (WSQ) course on food preparation, hygiene and safety to train them in adopting the right food handling techniques to ensure optimal food safety.

Impact: High Probability: Low Operational Risk (4) – Manpower Risk

• F&B industry jobs remain shunned by locals due to the perceived long hours for low pay and lack of prestige, while foreign labour remains heavily regulated, resulting in lower supply of manpower

• This may hinder Jumbo Group’s operations and expansion efforts in Singapore, while putting pressure on margins

• Jumbo’s mitigating strategy has revolved around prioritising employee skills upgrading and welfare to attract workers and inculcate employee loyalty to reduce turnover

Impact: Medium Probability: Medium

Currency Risk (5)

• Jumbo is increasingly exposed to RMB fluctuations given that its Chinese outlets increasingly account for its revenue. A depreciation in the RMB would impact earnings, which are reported in SGD

• However, management has mentioned that it relies on natural hedges to mitigate FX risks, which would help alleviate the impact of a RMB depreciation

Impact: Low Probability: Medium

12

Disclaimer

This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NUS Invest. The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. This report is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this research material are subject to change without notice.

© 2016 NUS Investment Society

- Appendix - Appendix A: Jumbo Group - Outlet Information

Data Sources: Company Presentations, CGS-CIMB, Maybank Kim Eng, Dianping, NUS Investment Society Estimates

Arrangements Opening Year Years in Op GFA (sq ft) Est Table Count Est Avg Seating/Table Est Seating Capacity Est Avg Spend per Pax

Singapore

Jumbo Seafood East Coast Fully Owned & Managed 1987 31 20,484 160 8 1280

Jumbo Seafood, Riverside Point Fully Owned & Managed 2002 16 8,947 45 8 360

Jumbo Seafood, The Riverwalk Fully Owned & Managed 2004 14 5,965 35 8 280

Jumbo Seafood @ NSRCC Fully Owned & Managed 2006 12 7,309 40 8 320

Jumbo Seafood @ Dempsey Fully Owned & Managed 2008 10 6,129 40 8 320

China

Jumbo Seafood iAPM, Shanghai Jumbo (70%) & Breadtalk (30%) 2013 5 12,239 75 8 600

Jumbo Seafood Raffles City, Shanghai Jumbo (70%) & Breadtalk (30%) 2015 3 7,368 45 8 360

Jumbo Seafood IFC Mall, Shanghai Jumbo (70%) & Breadtalk (30%) 2016 2 6,997 40 8 320

Jumbo Seafood SKP, Beijing Jumbo (51%) & BHG (49%) 2017 1 6,500 40 8 320

Jumbo Seafood L'Avenue Mall, Shanghai Jumbo (70%) & Breadtalk (30%) 2018 0 8,934 50 8 400

Jumbo Seafood Xi'An SKP, Xi'An Jumbo (51%) & BHG (49%) 2018 0 13,993 85 8 680

Taiwan

Jumbo Seafood Shin Kong Misukoshi, Taipei Franchise 2017 1 NA 40 8 320 $70.00

Vietnam

Jumbo Seafood ĐỒNG KHỞI, Ho Chi Minh Franchise 2017 1 NA 40 8 320 $70.00

Singapore

Ng Ah Sio Bak Kut Teh, Rangoon Road Fully Owned & Managed 2010 8 2,637 25 4 100

Ng Ah Sio Bak Kut Teh, Marina Bay Sands Fully Owned & Managed 2010 8 Foodcourt Store

Ng Ah Sio Bak Kut Teh, Chui Huay Lim Club Fully Owned & Managed 2012 6 1,343 15 4 60

Ng Ah Sio Bak Kut Teh, Resorts World Sentosa Fully Owned & Managed 2016 2 1,600 20 4 80

Singapore

JPOT, Vivocity Fully Owned & Managed 2009 9 6,405 40 4 160

JPOT, Tampines 1 Fully Owned & Managed 2012 6 6,674 40 4 160

Singapore

Chui Huay Lim Club, Newton Fully Owned & Managed 2011 7 10,172 70 8 560 $55.00

Singapore

J Café @ NSRCC Fully Owned & Managed 2014 4 7,697 50 4 200 $16.00

Singapore

Tsui Wah HK Café, River Valley Jumbo (49%) & Kang Wang (51%) 2018 0 13,993 80 4 320 $25.00

Brand

Ng Ah Sio Bak Kut Teh

Jumbo Seafood

JPOT

Chui Huay Lim Teochew Cuisine

J Café

Tsui Wah HK Café

$35.00

$25.00

$77.23

$70.00

13

Appendix B: Relative Valuation – Local and Regional Peer Comparisons

Data Sources: Bloomberg, NUS Investment Society Estimates

Appendix C: Extended DuPont Analysis

Company Bloomberg Ticker Notable Brands

Share

Price (local

ccry)

Market

Cap

(US$'000) +1FY P/E +1FY P/B +1FY P/S

+1FY

EV/EBITDA

+1FY

EV/Sales

Last FY

Net Profit

Margin (%)

Last FY

ROE (%)

Last FY

ROA (%)

Last FY Net

Debt/Equity

(x)

Jumbo Group Ltd JUMBO SP Jumbo Seafood, Ng Ah Sio Bak Kut Teh, JPOT 0.53 245,996 18.6 4.5 2.1 10.8 1.8 10.4% 22.0% 18.1% 0.00x

Singapore-listed F&B

ABR Holdings Ltd ABR SP Swensen's, Seasons Confectionary & Bakery 0.86 127,475 N/A N/A N/A N/A N/A 5.3% 6.1% 4.8% 0.00x

BreadTalk Group Ltd BREAD SP BreadTalk, Din Tai Fung, Food Republic, Toast Box 1.19 494,322 36.1 4.6 1.0 8.3 1.1 3.6% 13.6% 3.9% 1.14x

Japan Foods Hldg Ltd JFOOD SP Ajisen, Akimitsu, Kazokutei 0.48 61,624 13.3 2.2 1.2 4.8 0.9 8.5% 17.0% 13.3% 0.00x

Katrina Group Ltd KTG SP Bali Thai, so Pho 0.20 34,148 N/A N/A N/A N/A N/A 1.7% 7.1% 4.4% 0.00x

Kimly Ltd KIMLY SP Kimly Coffeeshop, FoodClique, Kimly Seafood 0.34 294,061 17.5 4.5 1.8 9.7 1.4 11.2% 29.1% 20.2% 0.00x

Neo Group NGL SP Neo Garden, Kim Paradise, Umisushi 0.56 60,257 18.7 N/A 0.4 N/A 0.7 1.9% 8.6% 2.3% 1.96x

No Signboard Hldgs Ltd NSB SP No Signboard Seafood, Draft Denmark 0.19 64,790 N/A N/A N/A N/A N/A 31.7% 46.3% 30.4% 0.06x

Old Chang Kee Ltd OCK SP Old Chang Kee 0.76 68,475 17.8 3.0 1.0 6.9 1.0 4.7% 14.2% 7.7% 0.40x

RE&S Hldgs Ltd RES SP Ichiban Sushi, Shokutsu Ten 0.19 48,296 N/A N/A N/A N/A N/A 4.0% 23.1% 9.7% 0.70x

Sakae Hldgs Ltd SAKAE SP Sakae Sushi 0.28 28,800 N/A N/A N/A N/A N/A 1.5% 2.9% 0.9% 1.57x

Soup Restaurant Group SOUP SP Soup Restaurant, Café O 0.18 37,183 N/A N/A N/A N/A N/A 4.8% 18.9% 12.6% 0.00x

Tung Lok Restaurants TUNG SP TungLok Signatures, Dancing Crab, Lao Beijing 0.21 42,496 N/A N/A N/A N/A N/A -1.6% -10.1% -4.3% 0.19x

Local Peers - Simple Average 113,494 20.7 3.6 1.1 7.4 1.0 6.4% 14.7% 8.8% 0.50x

Regional-listed F&B

Ajisen (China) 538 HK Ajisen 0.54 74,517 11.3 0.9 1.1 3.7 0.7 -20.9% -16.4% -13.2% 0.11x

Berjaya Food Berhad BFD MK Jollibean Foods, Berjaya Roasters (Kenny Rogers) 0.50 46,952 19.4 1.3 0.8 6.8 1.1 0.2% 0.3% 0.1% 0.72x

Café de Coral 341 HK Café De Coral, Shanghai Lao Lao 3.20 238,811 20.6 3.2 1.2 9.4 1.0 5.4% 13.3% 10.3% 0.00x

Gourmet Master 2723 TT 85 Café 12.97 76,807 21.7 4.2 1.9 8.7 1.6 9.3% 21.7% 13.6% 0.12x

Jolibee Foods Corp JFC PM Jolibee 6.39 129,855 34.7 5.5 1.6 16.5 1.4 5.4% 17.1% 8.1% 0.38x

La Kaffa Intl 2732 TT La Kaffa, Chatime, Bake Code 3.78 4,515 14.6 N/A 0.8 N/A 0.8 6.6% 13.8% 7.9% 0.39x

Minor Intl MINT TB Burger King (Thailand, Maldives, Myanmar) 1.39 194,020 25.1 2.8 2.5 14.3 3.1 9.8% 10.7% 4.5% 1.00x

MK Retaurant Group M TB MK Restaurants 3.01 83,621 24.7 4.6 3.7 13.0 3.0 15.1% 17.4% 14.8% 0.00x

Oishi Group OISHI TB Oishi Grand, Oishi Eaterium, Oishi Japanese Buffet 3.83 21,659 15.5 2.7 1.3 8.8 1.4 10.7% 25.7% 14.8% 0.36x

Tsui Wah Hldgs 1314 HK Tsui Wah Restaurants 0.16 29,524 13.6 0.9 0.6 3.9 0.4 4.4% 6.9% 5.3% 0.06x

Yum China Hldgs YUMC US KFC, Pizza Hut, Taco Bell 50.71 19,577,257 23.4 4.1 1.6 9.0 1.4 5.6% 14.5% 9.8% 0.01x

Regional Peers - Simple Average 1,861,595 20.4 3.0 1.5 9.4 1.4 4.7% 11.4% 6.9% 0.29x

Overall Average 949,542 20.5 3.2 1.4 8.8 1.3 5.6% 13.1% 7.9% 0.40x

Extended DuPont Analysis 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

Tax Burden

Profit Before Tax 15,141 18,438 17,819 22,028 26,120 35,533 38,799 40,540

Net Income 13,322 15,708 15,040 18,283 21,679 29,492 32,204 33,648

Tax Burden Ratio 0.88 0.85 0.84 0.83 0.83 0.83 0.83 0.83

Interest Burden

Profit Before Tax 15,141 18,438 17,819 22,028 26,120 35,533 38,799 40,540

EBIT 15,173 18,464 17,823 22,028 26,120 35,533 39,028 40,907

Interest Burden Ratio 1.00 1.00 1.00 1.00 1.00 1.00 0.99 0.99

Profitability

Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

EBIT 15,173 18,464 17,823 22,028 26,120 35,533 39,028 40,907

Operating Profit Margin 0.12 0.14 0.12 0.14 0.15 0.15 0.15 0.15

Asset Turnovers

Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

Total Assets 83,517 86,238 83,230 95,690 103,703 127,424 147,499 164,937

Total Asset Turnover 1.47 1.59 1.74 1.68 1.73 1.83 1.75 1.67

Financial Leverage

Total Assets 83,517 86,238 83,230 95,690 103,703 127,424 147,499 164,937

Total Equity 65,197 66,508 68,480 74,879 81,383 88,756 96,807 105,219

Asset/Equity Ratio 1.28 1.30 1.22 1.28 1.27 1.44 1.52 1.57

Return on Equity 20.4% 23.6% 22.0% 24.4% 26.6% 33.2% 33.3% 32.0%

14

- Financial Model -

Scenario Assumptions

Jumbo Group LimitedAssumptions

x Assumptions Notes 2017A 2018E 2019E 2020E 2021E 2022E

All figures in SGD '000, unless stated otherwise Comments

Base Case

Assumptions - Revenue

X New Outlets (Company-Operated)

Singapore

Jumbo Seafood

Downside Case - - 1 - -

Base Case - - 1 - -

Upside Case - - 1 - 1 Jewel Changi + 1 other new outlet


Downside Case - - - 1 -

Base Case - - 1 - - Historical trend

Upside Case - 1 - 1 -

JPOT


Base Case - 1 - 1 - Estimation




Base Case - 1 - - - Management guidance


J'café

Downside Case - - - - 1

Base Case - - - - 1 Estimation

Upside Case - - - 1 -

China

Jumbo Seafood

Downside Case 1 1 1 - - Expansion momentum stalls

Base Case 2 1 2 1 1 Historical trend of ~1 per yr

Upside Case 1 2 2 2 1 Aggressive expansion

X Est Average Table Count per Outlet

Singapore

Jumbo Seafood 64 64 64 64 64 64 Held constant

Ng Ah Sio Bak Kut Teh 20 20 20 20 20 20 Held constant

JPOT 40 40 40 40 40 40 Held constant

Chui Huay Lim Teochew Cuisine 70 70 70 70 70 70 Held constant

J'café 50 50 50 50 50 50 Held constant

China


X Est Seat Capacity per Table

Singapore


Ng Ah Sio Bak Kut Teh 4 4 4 4 4 4 Held constant

JPOT 4 4 4 4 4 4 Held constant

Chui Huay Lim Teochew Cuisine 8 8 8 8 8 8 Held constant

J'café 4 4 4 4 4 4 Held constant

China


X Average Spend per Pax (SGD)

Singapore

Jumbo Seafood $60.00 HungryGoWhere avg spend

Ng Ah Sio Bak Kut Teh $14.00 HungryGoWhere avg spend

JPOT $35.00 HungryGoWhere avg spend

Chui Huay Lim Teochew Cuisine $55.00 HungryGoWhere avg spend

J'café $16.00 Estimation

China

Jumbo Seafood $77.23 Dianping.com avgspend

Jewel Changi Airport new outlet

15

X Average Spend per Pax - Yoy Growth (%)

Singapore

Jumbo Seafood

Downside Case 0% 0% 0% 0% 0%

Base Case 2% 2% 2% 2% 2% Long term GDP/capita growth

Upside Case 3% 3% 3% 3% 3%




Upside Case 3% 3% 3% 3% 3%

JPOT



Upside Case 3% 3% 3% 3% 3%




Upside Case 3% 3% 3% 3% 3%

J'café



Upside Case 3% 3% 3% 3% 3%

China

Jumbo Seafood



Upside Case 5% 5% 5% 5% 5%

X Est Avg Daily Table Turns (x)

Singapore

Jumbo Seafood

Downside Case 1.45x 1.45x 1.45x 1.45x 1.45x

Base Case 1.57x 1.57x 1.57x 1.57x 1.57x 1.57x Status quo

Upside Case 1.65x 1.65x 1.65x 1.65x 1.65x





JPOT








J'café




China

Jumbo Seafood




16

x Notes 2017A 2018E 2019E 2020E 2021E 2022E


Assumptions - Franchise

Base Case

X New Franchised Outlets

Taiwan


Base Case 1 1 1 1 1 Franchise agreement

Upside Case 1 1 2 2 2 Expansion picks up pace

Vietnam


Base Case 1 1 1 - 1 Franchise agreement


Thailand


Base Case 1 - 1 - 1 Estimation


Pipeline (Other Countries)

Downside Case 1 1 1 1 - Expansion momentum stalls

Base Case 1 2 2 2 2 Estimation


Pipeline - New Franchise Agreements (Other Countries)




X Revenue Assumptions - Franchised Outlets

Average spend per pax (SGD) $60.00 Based on SG avg spend

Yoy Growth (%)

Downside Case 1.0% 1.0% 1.0% 1.0%

Base Case 2.0% 2.0% 2.0% 2.0% Long term GDP/capita growth

Upside Case 3.0% 3.0% 3.0% 3.0%

Est average table count per outlet 40 40 40 40 40 Estimation

Est seat capacity per table 8 8 8 8 8 Estimation

Daily table turns (x)


Base Case 0.30x 0.30x 0.30x 0.30x 0.30x Estimation


X Franchise Assumptions

Share of revenue (%) 5.0% 5.0% 5.0% 5.0% 5.0% Estimation

Initial Franchise Fee (SGD '000) 200 200 200 200 200 Based on FY17

17

x Notes 2017A 2018E 2019E 2020E 2021E 2022E


Assumptions - JV

X Outlets - Assumptions

New Outlets

Downside Case 1 0 1 0 0


Upside Case 1 1 1 0 1

.

X Revenue Assumptions

Average spend per pax (SGD) $20.00 Estimation

YoY Growth (%)

Downside Case 1.0% 1.0% 1.0% 1.0% 1.0%

Base Case 2.0% 2.0% 2.0% 2.0% 2.0% Long term GDP/capita growth

Upside Case 3.0% 3.0% 3.0% 3.0% 3.0%

Est average table count per outlet 80 80 80 80 80 Estimation

Est seat capacity per table 4 4 4 4 4 Estimation

Daily table turns (x)


Base Case 0.5x 0.5x 0.5x 0.5x 0.5x Estimation


X Expenses Assumptions

COGS Margin (%)

Downside Case 42.5% 42.5% 42.5% 42.5% 42.5%

Base Case 40.0% 40.0% 40.0% 40.0% 40.0% Estimation

Upside Case 37.5% 37.5% 37.5% 37.5% 37.5%

Opex Margin (%)

Downside Case 52.5% 52.5% 52.5% 52.5% 52.5%

Base Case 50.0% 50.0% 50.0% 50.0% 50.0% Estimation

Upside Case 47.5% 47.5% 47.5% 47.5% 47.5%

Finance Costs ($) (50) (50) (50) (50) (50) Estimation

Tax Rate (%) 17.0% 17.0% 17.0% 17.0% 17.0%

X JV Structure

Jumbo's Stake (%) 49.0% 49.0% 49.0% 49.0% 49.0%

Jumbo's Paid-up Capital 245 245 245 245 245

Initial Franchise Fee (SGD '000) 200

18

Assumptions Summary – Revenue

Revenue Assumptions

Base Case

Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

X Outlet Count (Company-Operated)

Singapore

Jumbo Seafood 5 5 5 5 5 6 6 6

Ng Ah Sio Bak Kut Teh 3 4 4 4 4 5 5 5

JPOT 3 3 2 2 3 3 4 4

Chui Huay Lim Teochew Cuisine 1 1 1 1 1 2 2 2

J'café 1 1 1 1 1 1 1 2

Total - Singapore 13 14 13 13 14 17 18 19

China

Jumbo Seafood 2 3 4 6 7 9 10 11

Total - China 2 3 4 6 7 9 10 11

X New Outlets (Company-Operated)

Singapore

Jumbo Seafood - - - - - 1 - -

Ng Ah Sio Bak Kut Teh - 1 - - - 1 - -

JPOT - - - - 1 - 1 -

Chui Huay Lim Teochew Cuisine - - - - - 1 - -

J'café - - - - - - - 1

Total New - Singapore - 1 - - 1 3 1 1

China

Jumbo Seafood 1 1 2 2 1 2 1 1

Total New - China 1 1 2 2 1 2 1 1

X Average Revenue per Outlet

Singapore

Jumbo Seafood 17,554 17,956 18,315 18,682 19,055 19,436

Ng Ah Sio Bak Kut Teh 2,539 2,585 2,637 2,690 2,743 2,798

JPOT 5,079 5,171 5,274 5,379 5,487 5,597

Chui Huay Lim Teochew Cuisine 10,157 10,320 10,527 10,737 10,952 11,171

J'café 1,452 1,477 1,507 1,537 1,568 1,599

Average - Singapore 9,207 9,405 9,284 9,687 9,637 9,397

China

Jumbo Seafood 6,353 6,485 7,080 7,568 8,503 8,758

Average - China 6,353 6,485 7,080 7,568 8,503 8,758

X Est Average Table Count per Outlet

Singapore

Jumbo Seafood 64 64 64 64 64 64

Ng Ah Sio Bak Kut Teh 20 20 20 20 20 20

JPOT 40 40 40 40 40 40

Chui Huay Lim Teochew Cuisine 70 70 70 70 70 70

J'café 50 50 50 50 50 50

China

Jumbo Seafood 56 56 56 56 56 56

X Est Seat Capacity per Table

Singapore

Jumbo Seafood 8 8 8 8 8 8

Ng Ah Sio Bak Kut Teh 4 4 4 4 4 4

JPOT 4 4 4 4 4 4

Chui Huay Lim Teochew Cuisine 8 8 8 8 8 8

J'café 4 4 4 4 4 4

China

Jumbo Seafood 8 8 8 8 8 8

19

X Average Spend per Pax (SGD)

Singapore

Jumbo Seafood

Average Spend/Pax $60.00 $61.20 $62.42 $63.67 $64.95 $66.24

Yoy Growth (%) 2.0% 2.0% 2.0% 2.0% 2.0%



Yoy Growth (%) 2.0% 2.0% 2.0% 2.0% 2.0%

JPOT


Yoy Growth (%) 2.0% 2.0% 2.0% 2.0% 2.0%



Yoy Growth (%) 2.0% 2.0% 2.0% 2.0% 2.0%

J'café


Yoy Growth (%) 2.0% 2.0% 2.0% 2.0% 2.0%

China

Jumbo Seafood


Yoy Growth (%) 3.0% 3.0% 3.0% 3.0% 3.0%

X Est Avg Daily Table Turns (x)

Singapore

Jumbo Seafood 1.57x 1.57x 1.57x 1.57x 1.57x 1.57x

Ng Ah Sio Bak Kut Teh 6.21x 6.20x 6.20x 6.20x 6.20x 6.20x

JPOT 2.48x 2.48x 2.48x 2.48x 2.48x 2.48x

Chui Huay Lim Teochew Cuisine 0.90x 0.90x 0.90x 0.90x 0.90x 0.90x

J'café 1.24x 1.24x 1.24x 1.24x 1.24x 1.24x

China

Jumbo Seafood 0.50x 0.50x 0.53x 0.55x 0.60x 0.60x

20

Assumptions – Jumbo Seafood Franchises

Jumbo Seafood - Franchise Assumptions

Base Case

Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

X Franchise Income - Summary

Taiwan

Jumbo Seafood - - - 105 214 328 446 569

Vietnam

Jumbo Seafood - - 200 210 322 437 446 569

Thailand

Jumbo Seafood - - - 105 107 219 223 341


Jumbo Seafood - - - 705 722 747 981 1,224

Total Franchise Income - - 200 1,126 1,365 1,731 2,096 2,703

X Jumbo Seafood

Taiwan

Total revenue (SGD) 2,102 4,289 6,562 8,924 11,379

Royalties to Jumbo 105 214 328 446 569

Vietnam



Thailand





Royalties to Jumbo 105 322 547 781 1,024

Initial franchise fees (SGD) 600 400 200 200 200

Total 705 722 747 981 1,224

X Franchised Outlet Count

Taiwan - 1 2 3 4 5

Vietnam 1 2 3 4 4 5

Thailand - 1 1 2 2 3

Pipeline (Other Countries) - 1 3 5 7 9

Total 1 5 9 14 17 22

X New Franchised Outlets

Taiwan - 1 1 1 1 1

Vietnam 1 1 1 1 - 1

Thailand - 1 - 1 - 1

Pipeline (Other Countries) - 1 2 2 2 2

Total 1 4 4 5 3 5

Pipeline - New Franchise Agreements (Other Countries) 3 2 1 1 1

X Revenue Assumptions - Franchised Outlets

Average spend per pax (SGD) $60.00 $61.20 $62.42 $63.67 $64.95

Yoy Growth (%) 2% 2% 2% 2%

Est average table count per outlet 40 40 40 40 40

Est seat capacity per table 8 8 8 8 8

Daily table turns (x) 0.3x 0.3x 0.3x 0.3x 0.3x

X Franchise Assumptions

Share of revenue (%) 5.0% 5.0% 5.0% 5.0% 5.0%

Initial Franchise Fee (SGD '000) 200 200 200 200 200

21

Assumptions – Tsui Wah JV

Pro Forma Financial Statements

Tsui Wah HK Café - JV Assumptions

X Tsui Wah HK Café

Total Revenue 1,168 1,191 2,430 2,479 3,793

Profit before Tax 67 69 193 198 329

Jumbo's Share of PBT 33 34 95 97 161

X Financials

Total Revenue 1,168 1,191 2,430 2,479 3,793

COGS (467) (477) (972) (992) (1,517)

Gross Profit 701 715 1,458 1,487 2,276

Opex (584) (596) (1,215) (1,239) (1,896)

Operating Profit 117 119 243 248 379

Finance Costs (50) (50) (50) (50) (50)

PBT 67 69 193 198 329

Tax Expense (11) (12) (33) (34) (56)

Net Profit 55 57 160 164 273

Net Profit Margin (%) 4.7% 4.8% 6.6% 6.6% 7.2%

X Outlets - Assumptions

Total Outlets - 1 1 2 2 3

New Outlets 1 0 1 0 1

X Revenue Assumptions

Average spend per pax (SGD) $20.00 $20.40 $20.81 $21.22 $21.65

2.0% 2.0% 2.0% 2.0%

Est average table count per outlet 80 80 80 80 80

Est seat capacity per table 4 4 4 4 4

Daily table turns (x) 0.5x 0.5x 0.5x 0.5x 0.5x

X Expenses Assumptions

COGS Margin (%) 40.0% 40.0% 40.0% 40.0% 40.0%

Opex Margin (%) 50.0% 50.0% 50.0% 50.0% 50.0%

Finance Costs ($) (50) (50) (50) (50) (50)

Tax Rate (%) 17.0% 17.0% 17.0% 17.0% 17.0%

X JV Structure

Jumbo's Stake (%) 49.0% 49.0% 49.0% 49.0% 49.0%

Jumbo's Paid-up Capital 245 245 245 245 245

Initial Franchise Fee (SGD '000) 200

Jumbo Group Limited3 Financial Statements

x 3 Financial Statements Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

All figures in SGD '000, unless stated otherwise

x Income Statement 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

Revenues

Revenue 22 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

Cost of sales (45,520) (50,300) (53,179) (59,496) (66,033) (85,317) (95,180) (101,226)

Raw materials and consumables used (45,339) (50,361) (53,563) (59,451) (66,228) (85,873) (95,355) (101,396)

Change in inventories (181) 61 384 (45) 194 556 175 170

Gross Profit 77,274 86,452 91,924 101,672 113,506 147,479 163,320 173,652

Other income 23 3,160 3,335 2,747 4,711 5,358 6,904 7,839 8,809

Employee benefits expense (34,751) (39,247) (41,765) (46,085) (51,338) (66,566) (73,916) (78,599)

Operating lease expenses (10,335) (11,890) (13,874) (14,329) (15,962) (20,697) (22,983) (24,439)

Utilities expenses (3,631) (3,457) (3,273) (4,158) (4,632) (6,006) (6,670) (7,092)

Depreciation expense 14 (3,455) (3,524) (4,578) (5,386) (4,793) (4,339) (4,775) (6,075)

Other operating expenses 24 (13,146) (13,342) (13,492) (15,988) (17,810) (23,093) (25,643) (27,268)

Operating Profit 15,117 18,327 17,689 20,437 24,328 33,680 37,173 38,988

Finance costs (32) (26) (4) - - - (228) (368)

Share of results of associates 11 57 137 134 1,758 1,758 1,758 1,758 1,758

Share of results of JV - - - (167) 34 95 97 161

Profit before tax (PBT) 15,141 18,438 17,819 22,028 26,120 35,533 38,799 40,540

Income tax expense 25 (1,819) (2,730) (2,779) (3,745) (4,440) (6,041) (6,596) (6,892)

Income tax rate (%) 12.0% 14.8% 15.6% 17.0% 17.0% 17.0% 17.0% 17.0%

Profit for the year 27 13,322 15,708 15,040 18,283 21,679 29,492 32,204 33,648

Basic and diluted earnings per share (cents) 29 2.1 2.4 2.3 2.9 3.4 4.6 5.0 5.2

Weighted average shares outstanding:

Basic & diluted 641,333 641,333 641,483 641,483 641,483 641,483 641,483 641,483

EBITDA 18,629 21,988 22,401 27,414 30,912 39,872 43,802 46,982

EBIT 15,173 18,464 17,823 22,028 26,120 35,533 39,028 40,907

22

x Balance Sheet 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

Assets

Current assets

Cash and cash equivalents 6 60,061 59,264 51,262 56,501 54,187 58,199 64,625 68,719

Trade and other receivables 7(a) 6,601 6,025 9,036 8,607 9,567 13,075 14,046 15,021

Due from subsidiaries 7(b) - - - - - - - -

Dividend receivable 7(b) - - - - - - - -

Short-term investments 8 329 332 426 426 426 426 426 426

Inventories 9 1,034 1,095 1,479 1,434 1,628 2,184 2,359 2,529

Total current assets 68,026 66,716 62,203 66,968 65,808 73,885 81,456 86,696

Non-current assets

Investments in subsidiaries 10 - - - - - - - -

Investments in associates 11 415 416 550 2,308 4,066 5,824 7,582 9,340

Investment in joint-venture - - - 78 112 206 303 465

Available-for-sale investment 12 75 75 75 75 75 75 75 75

Goodwill 13 782 782 782 782 782 782 782 782

Property, plant and equipment 14 13,981 18,011 19,382 25,242 32,623 46,414 57,063 67,341

Club memberships 15 238 238 238 238 238 238 238 238

Total non-current assets 15,491 19,522 21,027 28,722 37,895 53,539 66,044 78,241

x Total assets 83,517 86,238 83,230 95,690 103,703 127,424 147,499 164,937

x Liabilities And Equity

Current Liabilities

Trade and other payables 16 14,166 14,527 10,085 15,654 16,347 19,941 23,616 24,583

Bank borrowings 17 182 87 - - - 11,413 18,384 25,099

Provision for reinstatement costs 18 1,477 1,618 1,829 1,829 1,829 1,829 1,829 1,829

Income tax payable 1,752 2,685 2,535 2,974 3,704 4,903 6,135 7,335

Total current liabilities 17,577 18,917 14,449 20,457 21,880 38,086 49,964 58,847

Non-current liabilities

Bank borrowings 17 649 512 - - - - - -

Deferred tax liability 19 94 301 301 353 440 582 728 871

Total non-current liabilities 743 813 301 353 440 582 728 871

x Total Liabilities 18,320 19,730 14,750 20,811 22,320 38,668 50,692 59,718

Equity

Share capital 20 2,596 48,441 48,550 48,550 48,550 48,550 48,550 48,550

Currency translation reserve 237 (109) (110) (110) (110) (110) (110) (110)

Merger reserve 21 - (2,828) (2,828) (2,828) (2,828) (2,828) (2,828) (2,828)

Retained earnings 54,090 19,277 19,639 26,038 32,542 39,915 47,966 56,378

x Equity attributable to owners of

The Company 62,364 64,781 65,251 71,650 78,154 85,527 93,578 101,990

Non-controlling interests 2,834 1,727 3,229 3,229 3,229 3,229 3,229 3,229

Total equity 65,197 66,508 68,480 74,879 81,383 88,756 96,807 105,219

Total Liabilities & Equity 83,518 86,238 83,230 95,690 103,703 127,424 147,499 164,936

23

x Cash Flow Statement 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

Operating activities

Profit before income tax 15,141 18,438 17,819 22,028 26,120 35,533 38,799 40,540

Adjustments for:

Depreciation expense 3,455 3,524 4,578 5,386 4,793 4,339 4,775 6,075

Interest income (101) (264) (174) (174) (192) (184) (198) (219)

Finance costs 32 26 4 - - - 228 368

Dividend income from short-term investments (122) (14) (14) (14) (14) (14) (14) (14)

Loss on property, plant and equipment written off 40 25 - - - - - -

Loss (Gain) in reversal of impairment of investment in associates - - - - - - - -

Loss (Gain) on disposal of property, plant and equipment (134) (10) 178 - - - - -

Fair value (gain) loss on short-term investments (4) 4 (94) - - - - -

Share-based payment expense (146) - 109 - - - - -

Unrealised foreign exchange loss (gain) 143 (193) 12 - - - - -

Share of results of associates (57) (137) (134) (1,758) (1,758) (1,758) (1,758) (1,758)

Share of results of JV - - - 167 (34) (95) (97) (161)

Operating cash flows before movements in working capital 18,248 21,399 22,284 25,635 28,915 37,822 41,736 44,830

Changes in Working Capital:

Trade and other receivables (1,256) 576 (3,011) 429 (960) (3,509) (971) (975)

Inventories 181 (61) (384) 45 (194) (556) (175) (170)

Trade and other payables 336 (659) (4,442) 5,569 693 3,594 3,675 967

Cash generated from operations 17,510 21,255 14,447 31,678 28,454 37,351 44,266 44,651

Interest income 101 264 174 174 192 184 198 219

Finance costs (32) (26) (4) - - - (228) (368)

Reinstatement cost paid - - (89) - - - - -

Income tax paid (2,460) (1,593) (2,929) (3,253) (3,624) (4,699) (5,218) (5,549)

Net cash from operating activities 15,118 19,900 11,599 28,599 25,021 32,836 39,017 38,954

Investing activities

Acquisition of property, plant and equipment (5,469) (7,893) (5,884) (11,245) (12,174) (18,131) (15,424) (16,353)

Acquisition of investment in associate - - - - - - - -

Investment in JV - - - (245) - - - -

Proceeds from reduction of investments in associate - - - - - - - -

Proceeds from disposal of property, plant and equipment 3,375 188 - - - - - -

Dividend income from short-term investments 104 7 14 14 14 14 14 14

Dividend income from an associate - 136 - - - - - -

Net cash used in investing activities (1,991) (7,562) (5,870) (11,476) (12,160) (18,117) (15,410) (16,339)

Financing activities

Capital contribution from non-controlling interest in a subsidiary 570 - 1,000 - - - - -

Proceeds from issuance of short term debt - - - - - 11,413 18,384 25,099

Proceeds from issuance of long term debt - - - - - - - -

Proceeds from issuance of shares, net of IPO expenses - 38,839 - - - - - -

Dividends paid (1,000) (51,742) (14,110) (11,884) (15,175) (22,119) (24,153) (25,236)

Repayment of short & long term debt (historical) (95) (96) (599) - - - - -

Repayment of short term debt - - - - - - (11,413) (18,384)

Repayment of long term debt - - - - - - - -

Repayment of finance leases (180) (135) - - - - - -

Net cash used in financing activities (505) (13,134) (13,709) (11,884) (15,175) (10,707) (17,181) (18,521)

Net increase/(decrease) in cash and cash equivalents 12,623 (796) (7,980) 5,239 (2,314) 4,012 6,426 4,094

Cash and cash equivalents at beginning of the year 47,438 60,061 59,264 51,262 56,501 54,187 58,199 64,625

Effect of foreign exchange rate changes - - (22) - - - - -

Cash and cash equivalents at end of the year 60,061 59,264 51,262 56,501 54,187 58,199 64,625 68,719

24

Revenue - Summary

JVs and Franchises – Summary

Jumbo Group LimitedRevenue

x Revenue Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


X Revenue

Singapore

Jumbo Seafood 87,769 89,781 91,577 112,090 114,331 116,618

Ng Ah Sio Bak Kut Teh 10,157 10,341 10,548 13,448 13,717 13,992

JPOT 10,157 10,341 15,822 16,138 21,948 22,387

Chui Huay Lim Teochew Cuisine 10,157 10,320 10,527 21,474 21,904 22,342

J'café 1,452 1,477 1,507 1,537 1,568 3,198

Total - Singapore 112,332 116,781 119,692 122,260 129,979 164,687 173,468 178,537

China

Jumbo Seafood 25,411 38,908 49,560 68,108 85,032 96,341

Total - China 10,463 19,971 25,411 38,908 49,560 68,108 85,032 96,341

Total Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

X Revenue Breakdown (%)

Singapore

Jumbo Seafood 60.5% 55.7% 51.0% 48.1% 44.2% 42.4%

Ng Ah Sio Bak Kut Teh 7.0% 6.4% 5.9% 5.8% 5.3% 5.1%

JPOT 7.0% 6.4% 8.8% 6.9% 8.5% 8.1%

Chui Huay Lim Teochew Cuisine 7.0% 6.4% 5.9% 9.2% 8.5% 8.1%

J'café 1.0% 0.9% 0.8% 0.7% 0.6% 1.2%

Total - Singapore 82.5% 75.9% 72.4% 70.7% 67.1% 65.0%

China

Jumbo Seafood 17.5% 24.1% 27.6% 29.3% 32.9% 35.0%

Total - China 17.5% 24.1% 27.6% 29.3% 32.9% 35.0%

Jumbo Group LimitedFranchise & JVs

x Franchise & JVs Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


X Total Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

X Other Income

Franchise Income - - 200 1,126 1,365 1,731 2,096 2,703

Dividend income from short-term investments 122 14 14 14 14 14 14 14

Others (Total) 3,038 3,321 2,533 3,572 3,979 5,159 5,729 6,092

Total Other Income 3,160 3,335 2,747 4,711 5,358 6,904 7,839 8,809

X Other Income (% of Revenue)

Franchise Income (%) 0.0% 0.0% 0.1% 0.7% 0.8% 0.7% 0.8% 1.0%

Dividend income from short-term investments (%) 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Others (Total) (%) 2.5% 2.4% 1.7% 2.2% 2.2% 2.2% 2.2% 2.2%

X Share of Results of JV

Jumbo's Share of PBT 33 34 95 97 161

Initial Franchise Fee (200) - - - -

Total (167) 34 95 97 161

25

COGS and Expenses

Working Capital

Jumbo Group LimitedCOGS & Expenses

x COGS & Expenses Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


X Revenue

Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

X Expenses

COGS (45,520) (50,300) (53,179) (59,496) (66,033) (85,317) (95,180) (101,226)



Operating Expenses (65,318) (71,460) (76,982) (85,946) (94,536) (120,703) (133,986) (143,473)

Employee benefits expense (34,751) (39,247) (41,765) (46,085) (51,338) (66,566) (73,916) (78,599)

Operating lease expenses (10,335) (11,890) (13,874) (14,329) (15,962) (20,697) (22,983) (24,439)

Utilities expenses (3,631) (3,457) (3,273) (4,158) (4,632) (6,006) (6,670) (7,092)

Depreciation expense (3,455) (3,524) (4,578) (5,386) (4,793) (4,339) (4,775) (6,075)

Other operating expenses (13,146) (13,342) (13,492) (15,988) (17,810) (23,093) (25,643) (27,268)

X Expenses Margin

COGS (%) 37.1% 36.8% 36.6% 36.9% 36.8% 36.6% 36.8% 36.8%

Raw materials and consumables used (%) 36.9% 36.8% 36.9% 36.9% 36.9% 36.9% 36.9% 36.9%

Change in inventories (%) -0.1% 0.0% 0.3% 0.0% 0.1% 0.2% 0.1% 0.1%

Employee benefits expense (%) 28.3% 28.7% 28.8% 28.6% 28.6% 28.6% 28.6% 28.6%

Operating lease expenses (%) 8.4% 8.7% 9.6% 8.9% 8.9% 8.9% 8.9% 8.9%

Utilities expenses (%) 3.0% 2.5% 2.3% 2.6% 2.6% 2.6% 2.6% 2.6%

Depreciation expense (%) 2.8% 2.6% 3.2% 3.3% 2.7% 1.9% 1.8% 2.2%

Other operating expenses (%) 10.7% 9.8% 9.3% 9.9% 9.9% 9.9% 9.9% 9.9%

X Income Tax Expense

PBT 15,141 18,438 17,819 22,028 26,120 35,533 38,799 40,540

Effective Tax rate (%) 12.0% 14.8% 15.6% 17.0% 17.0% 17.0% 17.0% 17.0%

Income tax expense (1,819) (2,730) (2,779) (3,745) (4,440) (6,041) (6,596) (6,892)

Income Tax Paid (2,460) (1,593) (2,929) (3,253) (3,624) (4,699) (5,218) (5,549)

% of Revenue 2.0% 1.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Total Deferred Tax 1,846 2,986 2,836 3,327 4,144 5,485 6,863 8,206

Current 1,752 2,685 2,535 2,974 3,704 4,903 6,135 7,335

(%) 95% 90% 89% 89.4% 89.4% 89.4% 89.4% 89.4%

Non-current 94 301 301 353 440 582 728 871

(%) 5% 10% 11% 10.6% 10.6% 10.6% 10.6% 10.6%

Jumbo Group LimitedWorking Capital

x Working Capital Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


x Days in year 365 366 365 365 365 366 365 365

.

x Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

Cost Of Sales (45,520) (50,300) (53,179) (59,496) (66,033) (85,317) (95,180) (101,226)



Operating Expenses (65,318) (71,460) (76,982) (85,946) (94,536) (120,703) (133,986) (143,473)

x Current Assets

Trade and other receivables 6,601 6,025 9,036 8,607 9,567 13,075 14,046 15,021

Inventories 1,034 1,095 1,479 1,434 1,628 2,184 2,359 2,529

(Assumptions)

Trade and other receivables - Days Sales Outstanding (DSO) 19.6 16.1 22.7 19.5 19.4 20.6 19.8 19.9

Inventories - Days Inventory Outstanding (DIO) 8.3 8.0 10.2 8.8 9.0 9.3 9.0 9.1

x Current Liabilities

Trade and other payables 14,166 14,527 10,085 15,654 16,347 19,941 23,616 24,583

Assumptions

Trade and other payables - (Days Payable Outstanding (DPO) 42.1 38.9 25.4 35.5 33.2 31.4 33.3 32.6

X Cash Conversion Cycle -14.19 -14.79 7.51 -7.16 -4.81 -1.48 -4.48 -3.59

26

Fixed Assets

Jumbo Group LimitedFixed Assets

x Fixed Assets Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


x Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

x Property, Plant & Equipment

Beginning Gross PPE 26,799 31,745 39,039 43,521 54,766 66,940 85,071 100,495

(+) Additions 5,451 8,056 6,338 11,245 12,174 18,131 15,424 16,353

(-) Disposals (202) (283) (1,811) - - - - -

(-) Write-backs (484) (90) (32) - - - - -

(-) Exchange Difference 181 (389) (13) - - - - -

Ending Gross PPE 31,745 39,039 43,521 54,766 66,940 85,071 100,495 116,848

(-) Begn Accumulated Depreciation 14 (14,833) (17,764) (21,028) (24,139) (29,525) (34,318) (38,657) (43,432)

(-) Depreciation (3,455) (3,524) (4,578) (5,386) (4,793) (4,339) (4,775) (6,075)

(+) Disposals 151 105 1,479 - - - - -

(+) Write-backs 410 64 32 - - - - -

(-) Exchange Difference (36) 91 (44) - - - - -

Net PPE 13,981 18,011 19,382 25,242 32,623 46,414 57,063 67,341

x CAPEX 5,469 7,893 5,884 11,245 12,174 18,131 15,424 16,353

CAPEX as a % of revenue 4.5% 5.8% 4.1% 7.0% 6.8% 7.8% 6.0% 5.9%

x Expansion CAPEX

Total number of company operated stores 15 17 17 19 21 26 28 30

Net number of stores added 1 2 1 2 2 5 2 2

Implied Expansion CAPEX / store 1,211.86 (2,009.00) 1,211.86 1,211.86 1,211.86 1,211.86 1,211.86

Total Expansion CAPEX 2,424 (2,009) 2,424 2,424 6,059 2,424 2,424

x Maintenance CAPEX

Total number of company operated stores 15 17 17 19 21 26 28 30

Implied Maintenance CAPEX / store 364.62 464.29 464.29 464.29 464.29 464.29 464.29

Total Maintenance CAPEX 8,822 9,750 12,072 13,000 13,929

x Depreciation Useful Life 4,578 5,386 4,793 4,339 4,775 6,075

x Depreciation (Useful Life Method)

Depreciation 5,386 4,793 4,339 4,775 6,075

Depreciation schedule

Existing PPE Cost

Net

Carrying

Amount Dep (2017) Disposals Write Offs

Exchange

Difference

Implied

useful life

(yrs)

Useful life

(yrs)

Audio, visual and office equipment 4,759 1,197 636 13 - (2) 7.5 3 - 10 yrs

Kitchen equipment and utensils 7,516 3,626 942 8 - 1 8.0 3 - 10 yrs

Furniture and fittings 5,775 1,415 637 17 - 2 9.1 3 - 10 yrs

Renovation 17,910 5,958 2,118 44 - 56 8.5 3 - 10 yrs

Leasehold industrial buildings 4,941 4,164 105 - - - 47.1 44 - 50 yrs

Motor vehicles 1,473 967 140 243 - - 10.5 10 yrs

Work in progress 1,146 684 - 7 - - - -

Total 43,520 18,011 4,578 332 - 57 91

Weighted Average useful life 13

Depreciation of existing fixed assets

Audio, visual and office equipment

Gross existing PPE 4,759

Begn net existing PPE 1,197 550 - - - -

(-) Depreciation 636 550 - - - -

(-) Disposals 13 - - - - -

(-) Write offs - - - - - -

(-) Exchange Differences (2) - - - - -

Ending net existing PPE 550 - - - - -

Implied useful life (yrs) 7.5 7.5 7.5 7.5 7.5 7.5

Kitchen equipment and utensils


Begn net existing PPE 3,626 2,675 1,733 791 - -

(-) Depreciation 942 942 942 791 - -

(-) Disposals 8 - - - - -

(-) Write offs - - - - - -

(-) Exchange Differences 1 - - - - -

Ending net existing PPE 2,675 1,733 791 - - -


Furniture and fittings


Begn net existing PPE 1,415 759 122 - - -

(-) Depreciation 637 637 122 - - -

(-) Disposals 17 - - - - -

(-) Write offs - - - - - -


Ending net existing PPE 759 122 - - - -


27

Renovation


Begn net existing PPE 5,958 3,740 1,622 - - -

(-) Depreciation 2,118 2,118 1,622 - - -

(-) Disposals 44 - - - - -

(-) Write offs - - - - - -


Ending net existing PPE 3,740 1,622 - - - -


Leasehold Industrial buildings


Begn net existing PPE 4,164 4,059 3,954 3,849 3,744 3,639

(-) Depreciation 105 105 105 105 105 105

(-) Disposals - - - - - -

(-) Write offs - - - - - -

(-) Exchange Differences - - - - - -

Ending net existing PPE 4,059 3,954 3,849 3,744 3,639 3,534


Motor vehicles


Begn net existing PPE 967 584 724 864 1,004 1,144

(-) Depreciation 140 140 140 140 140 140

(-) Disposals 243 - - - - -

(-) Write offs - - - - - -


Ending net existing PPE 584 724 864 1,004 1,144 1,284


Works in progress


Begn net existing PPE 684 677 677 677 677 677

(-) Depreciation - - - - - -

(-) Disposals 7 - - - - -

(-) Write offs - - - - - -


Ending net existing PPE 677 677 677 677 677 677

Implied useful life (yrs) - - - - - -

Depreciation (Existing PPE) 4,578.0 4,492.0 2,931.0 1,036.0 245.0 245.0

Depreciation (New PPE) CAPEX

Total 894 1,862 3,303 4,530 5,830

2018E 11,245 894 894 894 894 894

2019E 12,174 968 968 968 968

2020E 18,131 1,441 1,441 1,441

2021E 15,424 1,226 1,226

2022E 16,353 1,300Useful Life 12.6 12.6 12.6 12.6 12.6

x Depreciation (% of Reveue Method)

Depreciation 3,455 3,524 4,578 4,591 5,114 6,631 7,364 7,830

% of Revenue 2.8% 2.6% 3.2% 2.8% 2.8% 2.8% 2.8% 2.8%

X Amortization

x Club memberships

Carrying Amount 238 238 238 238 238 238 238

(+) Additions - - - - - - -

(-) Amortization - - - - - - -

Total 238 238 238 238 238 238 238

x Goodwill

Carrying Amount 782 782 782 782 782 782 782

(+) Additions - - - - - - -

(-) Amortization - - - - - - -

Total 782 782 782 782 782 782 782

28

Debt

Jumbo Group LimitedDebt

x Debt Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


X Revenue 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

Cash 60,061 59,264 51,262 56,501 54,187 58,199 64,625 68,719

Cash as % of revenue 48.9% 43.3% 35.3% 35.1% 30.2% 25.0% 25.0% 25.0%

Target min. cash bal. (% of rev) 25.0% 25.0% 25.0% 25.0% 25.0%

Target minimum cash balance 40,292 44,885 58,199 64,625 68,719

X Cashflow before revolver borrowings

Cash from operations 28,599 25,021 32,836 39,017 38,954

Cash from investing (11,476) (12,160) (18,117) (15,410) (16,339)

Cash form financing (11,884) (15,175) (22,119) (24,153) (25,236)

Add: Beginning cash balance 51,262 56,501 54,187 58,199 64,625

Less: Target minimum cash balance (40,292) (44,885) (58,199) (64,625) (68,719)

Cash balance before revolver borrowings 16,208 9,302 (11,413) (6,972) (6,715)

X Debt

Short-term loans - - 11,413 18,384 25,099

Long-term loans - - - - -

Current portion of long-term loans - - - - -

Non-current portion of long-term loans - - - - -

X Finance Cost - - - 228 368

X Short-term loans/Revolver

Beginning balance - - - 11,413 18,384

(+) Additions - - 11,413 18,384 25,099

(-) Principal Repayments - - - (11,413) (18,384)

Ending balance - - 11,413 18,384 25,099

Finance Cost - - - 228 368

Interest rate 2.00% 2.00% 2.00% 2.00% 2.00%

X Long-term borrowings Int Rate: Maturity:

Obligations under finance lease 4.00%

Beginning Balance - - - - - -

(+) Additions - - - - - -

(-) Principal Repayment - - - - - -

Ending Balance - - - - - -

Finance Cost - - - - - -

X Interest income 23

Cash in deposits 30,329 18,000 19,839 19,027 20,436 22,692 24,130

Interest Income 264 174 174 192 184 198 219

Implied Interest Rate (%) 0.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

X Cash Breakdown 6

Cash on hand 307 272 300 288 309 343 365

Implied Cash on hand as % of total cash (%) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Cash at bank 28,628 32,990 36,361 34,872 37,454 41,590 44,225

Implied Cash at bank as % of total cash (%) 48.3% 64.4% 64.4% 64.4% 64.4% 64.4% 64.4%

Deposits 30,329 18,000 19,839 19,027 20,436 22,692 24,130

Implied Deposits as % of total cash (%) 51.2% 35.1% 35.1% 35.1% 35.1% 35.1% 35.1%

*In 2017, deposits referred to structured deposits with financial institutions maturing within 3 months with variable interest returns. Management considered the value of the embedded derivatives to be negligible due to immaterial

movement in market environment and relative short term maturity of these financial instruments.

*In 2016, deposits referred to fixed deposits which matured within a year and bear interests ranging from 0.89% to

0.93% per annum

X Dividend income 23

Short Term Investments 332 426 426 426 426 426 426

Dividend Income 14 14 14 14 14 14 14

Dividend Yield (%) 4.2% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3%

*Assuming Fair Value and div payout remains the same

*The investments above include investments in quoted equity securities that offer the Group the opportunity for return through dividend income and fair value gains

They have no fixed maturity or coupon rate.

*The fair values of these securities are based on the quoted closing market prices on the last market day of the financial year.

29

Retained Earnings and Dividends

Discounted Cash Flow

Jumbo Group LimitedRetained Earnings & Dividends

x Retained Earnings & Dividends Notes 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E


x Retained Earnings

Beginning 19,639 26,038 32,542 39,915 47,966

(+) Net Income Attributable to Jumbo 18,283 21,679 29,492 32,204 33,648

(-) Dividends Paid (11,884) (15,175) (22,119) (24,153) (25,236)

Ending 19,639 26,038 32,542 39,915 47,966 56,378

x Dividends

Net Income Attributable to Jumbo 10,600 15,508 14,472 18,283 21,679 29,492 32,204 33,648

Dividends Paid (1,000) (10,903) (10,905) (11,884) (15,175) (22,119) (24,153) (25,236)

Dividend Payout Ratio (%) 9.4% 70.3% 75.4% 65.0% 70.0% 75.0% 75.0% 75.0%

*one off special dividend of 0.7c

NOSH ('000) 641,333 641,333 641,483 641,483 641,483 641,483 641,483 641,483

Dividends per share (SGD cents) 0.2 1.7 1.7 1.9 2.4 3.4 3.8 3.9

*The Company currently does not have a fixed dividend policy.

X DCF 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E

Revenue 0 122,795 136,752 145,103 161,168 179,539 232,795 258,500 274,878

Growth % SG$ '000 0.0% 11.4% 6.1% 11.1% 11.4% 29.7% 11.0% 6.3%

Gross Profit 0 77,274 86,452 91,924 101,672 113,506 147,479 163,320 173,652

Margin % SG$ '000 62.9% 63.2% 63.4% 63.1% 63.2% 63.4% 63.2% 63.2%

EBITDA 0 18,629 21,988 22,401 27,414 30,912 39,872 43,802 46,982

Margin % SG$ '000 15.2% 17.9% 18.2% 22.3% 25.2% 32.5% 35.7% 38.3%

EBIT 0 15,173 18,464 17,823 22,028 26,120 35,533 39,028 40,907

Margin % SG$ '000 12.4% 13.5% 12.3% 13.7% 14.5% 15.3% 15.1% 14.9%

Income Tax 0 (1,819) (2,730) (2,779) (3,745) (4,440) (6,041) (6,596) (6,892)

NOPAT 0 13,354 15,734 15,044 18,283 21,679 29,492 32,432 34,016

Add: Net increase in deferred taxes SG$ '000 1,140 (150) 491 816 1,341 1,378 1,343

NOPLAT 0 13,354 16,874 14,894 18,775 22,495 30,834 33,810 35,359

Add: D&A 0 3,455 3,524 4,578 5,386 4,793 4,339 4,775 6,075

As % of revenue SG$ '000 2.8% 2.6% 3.2% 3.3% 2.7% 1.9% 1.8% 2.2%

Less: Capex 0 (5,469) (7,893) (5,884) (11,245) (12,174) (18,131) (15,424) (16,353)

As % of revenue SG$ '000 4.5% 5.8% 4.1% 7.0% 6.8% 7.8% 6.0% 5.9%

Add/Less: Changes in NWC 0 738 144 7,837 (6,043) 461 471 (2,530) 178

As % of revenue SG$ '000 0.6% 0.1% 5.4% -3.7% 0.3% 0.2% -1.0% 0.1%

FCFF 0 12,079 12,649 21,425 6,872 15,576 17,513 20,631 25,259

Period proration factor SG$ '000 25% 100% 100% 100% 100%

Prorated FCFF 0 1,695 15,576 17,513 20,631 25,259

Discount period 0.12 1.12 2.12 3.12 4.12

Discount factor 0.99 0.91 0.84 0.78 0.72

Discounted cash flow 1,678 14,237 14,776 16,068 18,160

Documents

Jumbo Group Ltd - NUS Investment Society · companies such as Jumbo Group and Breadtalk have opted to invest in central kitchens and automation of parts of the food production process,