Evaluating a Restaurant Operator with Significant Insider Ownership

Article Highlights

• Declining revenue and increasing losses in FY2021
• Substantial reduction in negative free cash flow in FY2021
• JBO Holdings Pte Ltd is the largest shareholder at 45.3%
• Turned into a net debt company in the latest financial year

Jumbo Group Limited (“Jumbo”) is one of Singapore’s leading multi-dining concept F&B establishments. It has a portfolio of 7 F&B brands - JUMBO Seafood, HACK IT, NG AH SIO Bak Kut Teh, Zui Teochew Cuisine, Chao Ting Pao Fan, Kok Kee Wonton Noodle and XINYAO Hainanese Chicken Rice, operates 4 Tsui Wah Hong Kong style “Cha Chaan Teng” outlets as a franchisee in Singapore and co-owns the Singapore Seafood Republic brand which has three outlets, operated under the franchise model in Japan.

Evaluating Jumbo Group Limited using 4 Financial Metrics

Revenue & Net Profit

For FY2021, Jumbo’s revenue declined by 16.2% year-on-year to S$81.79 million. The decline was due to muted footfall in Singapore (the Group’s largest market), because of border controls and Covid-induced safe distancing measures.

Meanwhile, Jumbo’s loss for the period widened by 13.4% year-on-year to S$11.19 million. On top of the lower revenue, Jumbo’s bottom line was further impacted by:

• Under-utilized of workforce due to oscillating COVID-19 regulations.
• Drop in ‘Other income’ due to reduced rental rebates and lower government grants and subsidies, particularly the Jobs Support Scheme credits.

Free Cash Flow

After experiencing positive free cash flow in both FY2018 and FY2019, Jumbo’s free cash flow turned negative in FY2020 on back of the COVID-19 pandemic, which caused the Group to witness a significant reduction in cash flow from its operating activities, as well as a growth in capital expenditure.

The company turned prudent on the capital management in FY2021, reducing its capital expenditure and improved its negative free cash flow to just -S$142,000 in FY2021.

Ownership

The largest shareholder for Jumbo belongs to JBO Holdings Pte Ltd, which has a 45.37% stake in the company. Mr. Ang Hon Nam, who is the father of Mr. Ang Kiam Meng, the Group’s CEO and Executive Director, owns a majority interest in JBO Holdings Pte Ltd. Therefore, Mr. Ang Hon Nam is deemed to have an interest in the stake.

Other substantial shareholders include:

• Mr. Ron Sim Chye Hock, Founder of Osim (9.96% stake)
• Kuang Ming Investment Pte Ltd, owned by Far East Organisation’s CEO, Mr. Ng Chee Tat Philip (7.00% stake)
• Mr. Tan Gee Jian, Co-Founder of Jumbo Seafood back in 1987 (6.56% stake)

Leverage Ratio

A similar trend played out for its balance sheet where Jumbo is in a healthy financial position for both FY2018 and FY2019.

However, its total debt to equity increased to 0.48 times in FY2020, on back of the increase in bank borrowings and recognition of lease liabilities in relation to the capitalised right-of-use of assets.

In FY2021, Jumbo became a net debt company, with total debt to equity ratio surged to 0.90 times. This was caused by the increase in bank borrowings for working capital and long-term lease liabilities.

Conclusion and Prospects

To conclude, Jumbo’s financial performance has deteriorated significantly for the last 2 financial years, due to the impact from the ongoing COVID-19 pandemic. Coupled with negative free cash flow and high leverage ratio, investors will need to wait for a turnaround in the medium term.

In terms of management outlook, Jumbo mentioned that COVID-19 will undoubtedly continue to impose uncertainty on the Group’s operating environment moving into FY2022.

Pressure on the bottom line will continue to persist, with the Singapore Government’s support such as the Jobs Support Scheme tapering off, landlords’ rental rebates declining, and meaningful cost optimisation efforts maximised.

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