Jumbo Group seen as CGS-CIMB’s pick in 'overweight' F&B sector

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The analysts remain positive on the sector as they see restaurant sales recovering meaningfully.

CGS-CIMB analysts Kenneth Tan and Ong Khang Chuen are keeping their “overweight” call on Singapore’s food and beverage (F&B) sector as they see restaurant sales recovering “meaningfully”.

The analysts see a continued recovery in restaurants based on January’s data from the Singapore Department of Statistics (Singstat) that showed total F&B sales rising 20% y-o-y during the month. Both sales in restaurants and cafes and food courts rose by 19% y-o-y and 13% y-o-y respectively.

The analysts’ positive outlook also comes as food inflation continued to climb in January. Food prices in Singapore rose by 8.1% y-o-y during the month, which is the highest level recorded since August 2008. The higher prices were driven by rising food ingredient prices and wage increases, the analysts note.

Within the sector, Tan and Ong have named Jumbo 42R as their top sector pick as they see the group reporting a strong rebound in its profitability for the FY2023.

“We expect Jumbo to benefit from healthy restaurant spend as corporate meals continue to ramp up and higher tourist footfall (particularly from North Asia). Coupled with eased Covid-19 measures in China (24% revenue contribution in FY2022), we believe that Jumbo is set for a turnaround to profitability in FY2023,” the analysts write.

“In its annual general meeting (AGM) [in end-January], Jumbo highlighted that monthly revenue for some of its Singapore and overseas outlets have already returned to pre-Covid levels,” they add.

Meanwhile, Kimly 1D0 is also expected to benefit from the increased downtrading behaviour due to its mass-market positioning, but its cost pass-throughs could be limited as its customers become more cautious on spending. The analysts also see Kimly’s FY2023 results weighed down by slower outlet expansion.

The analysts have rated Jumbo “add” with a target price of 35 cents, which is based on 20.0x its P/E for the calendar year (CY) 2024 (or 1.5 standard deviations or s.d.) below its three-year historical mean.

Kimly has been rated “hold” with a target price of 39 cents. The target price is based on 15.4x Kimly’s CY2024 P/E or 0.5 s.d. below its five-year historical mean.

Re-rating or downside risks include better or worse cost pass-throughs, as well as the positive or negative impact on the sector’s earnings.

As at 4.02pm, shares in Jumbo are trading flat at 29.5 cents while shares in Kimly are trading 0.5 cents lower or 1.49% down at 33 cents.

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