Unveiling 3 F&B stocks – Is the transition into Phase 3 a catalyst for the sector?

Due to COVID-19 pandemic, Singapore’s economy has suffered its worst recession since Independence. The 2nd quarter GDP figures show that the economy contracted by 13.2% year-on-year, sharper than the 12.6% plunge earlier estimated.

One of the industries that were impacted heavily by the COVID-19 pandemic was the Food & Beverage sector. In a recent article by CNA, there were 1,242 F&B outlets in Singapore that were permanently shuttered between January and July 2020.

Year to Date Food & Beverage Sales Proceeds

Based on the above data provided by the Singapore Department of Statistics, we have seen a sharp decline of 24.2% month-on-month in Food & Beverage sales in the month of February to only S$730 million. In the month of April, where the circuit breaker began, sales proceeds fall further to only S$401 million and recovered only 5.9% month-on-month for May.

The surge in sales proceeds only came in when Singapore entered Phase 2 during Mid-June and continues through to July where it reflects a growth of 34.3%.

Breakdown of August 2020 Figures

Sales of food & beverage services fell 28.6% year-on-year in August 2020. On a seasonally adjusted basis, sales of food & beverage decreased by 3.4% month-on-month. The decline was mainly attributed to Food Caterers, as food catering services for the majority of foreign worker dormitories were no longer required from August 2020.

Despite a year-on-year drop of 32.2% in the sales value from restaurants, the seasonally adjusted figure was up 0.6% month-on-month.

Overall, the total sales value of food & beverage services in August 2020 was estimated at $665 million. Of these, online food & beverage sales made up an estimated 20.6%.

In this article, we will be looking at 3 Catalist-Listed Food & Beverage Companies, mainly, Jumbo Group Limited (SGX: 42R), RE&S Holdings Limited (SGX: 1G1) and Katrina Group Limited (SGX: 1A0) as Singapore gets ready to transit into Phase 3 before end of the year.

1) Jumbo Group Limited (SGX:42R)

Jumbo Group Limited (“JUMBO”) is one of Singapore’s leading multi-dining concept F&B establishments. It has a portfolio of 6 restaurant brands - JUMBO Seafood, JUMBO Kitchen, NG AH SIO Bak Kut Teh, Zui Teochew Cuisine, Chao Ting Pao Fan and XINYAO Hainanese Chicken Rice.

JUMBO also provides catering services for customers in Singapore and sells packaged sauces and spice mixes for some of its signature dishes in its outlets, selected stores, supermarkets, travel agencies and online via the JUMBO eShop.

Price Chart for Jumbo

Based on the Year to Date Chart, we can see that JUMBO’s share price has fallen more than 50%, from a high of 39 cents to a low of 19.3 cents during the month of February and March.

After the huge selldown, JUMBO’s share price rebounded slightly in April and stayed at a price level above 25 cents until the end of May.

With the Government announcement of Singapore heading into Phase 2 in June, investors cheered on the news and subsequently we saw JUMBO’s share price spiked up by more than 40%, from 25 cents to a high of 36 cents in July.

In the month of September, we have seen JUMBO’s share price is on a slight downtrend and close below the 30 cents level, before recovering back to above the price level in October.

Latest 1H FY2020 Result

JUMBO’s revenue for 1H FY2020 has fallen by 13.1% year-on-year to S$66.7 million. The drop in revenue can be seen from the low footfall across all outlets as a result of border controls, social distancing and lockdown measures. Gross profit suffered a steeper year-on-year fall due to higher promotions and discount to entice customers.

JUMBO’s profit after tax has seen diving 71.5% year-on-year to only S$2.1 million in 1H FY2020. This was due to minimal rental rebates from landlords and less than proportionate reduction in employee benefits expenses due to fixed staff base for JUMBO. However, this was offset by the various subsidies such as the Jobs Support Scheme and the Foreign Workers’ Levy rebates.

2) RE&S Holdings Limited (SGX:1G1)

RE&S Holdings Limited (“RE&S”) is a multi-concept owner and operator of F&B outlets in Singapore and Malaysia that provides customers with authentic Japanese cuisine and dining experience. Since its incorporation, RE&S has grown from a single Fiesta restaurant into a network comprising its Corporate Headquarters which houses more than 1,600 employees across the corporate office, a central kitchen in Tai Seng, a procurement office in Japan, and more than 70 F&B outlets. RE&S has a diverse portfolio comprising 20 distinct brands that cover the full spectrum of varied market segments.

Price Chart for RE&S

Based on the Year to Date Chart, RE&S’s share price has fallen from a high of S$0.16 in February to a low of S$0.065 in May. By the time when Singapore enters in Phase 2 of the re-opening, RE&S’s share price has staged a recovery to a high of S$0.10 by the end of June.

Despite having a strong selldown at the share price in the month of August and September, its share price has since managed to recover and kept stable at around S$0.074 in October.

Latest FY2020 Result

RE&S’s revenue for FY2020 has slipped by 21.5% year-on-year to S$110.6 million. The decline in revenue can be seen from the closure of 3 Full Service Restaurant Outlet and 5 Quick Service Restaurants. The prohibition of dine-services due to Circuit Breaker measures also resulted in a temporary closure of all 32 outlets, which resulted in a significant impact in the Group’s revenue.

RE&S has recorded a loss of S$5.3 million for FY2020. Despite recording a higher other operating income due to an increase in grants and reliefs from government and landlords, the losses can be seen from a higher cost in raw materials and consumables.

3) Katrina Group Limited (SGX: 1A0)

Established since 1995, Katrina Group Limited (“Katrina”) is a Food & Beverage group that specialises in multi-cuisine concepts and restaurant operations. The Group owns and operates 42 restaurants in Singapore and 2 restaurants in Indonesia under 9 different F&B brands, namely, Bali Thai, Honguo, So Pho, Streats, Bayang, Hutong, Muchos, RENNthai, and Tomo Izakaya.

Katrina’s hospitality business has scaled up since its acquisition in December 2018. The Group currently leases and manages 241 private residences, 2 apartment buildings comprising 68 apartment units as well as 4 co-living hotels comprising about 242 rooms across Singapore and 18 serviced apartments in Hong K

Price Chart for Katrina

Based on the Year to Date Chart, Katrina’s share price fallen from a high of S$0.17 to a low of S$0.076 in the month of August.

Despite its share price recording a huge jump to S$0.122 in the middle of June due to the Phase 2 re-opening, the uptrend was not sustainable, and the share price continues its downtrend from July till September to a low of S$0.09.

Latest 1H FY2020 Result

Katrina’s revenue for 1H FY2020 has seen a drop of 36.6% year-on-year to S$40.3 million. The decrease in revenue was mainly attributed to the impact from the COVID-19 pandemic. Lower sales were generated from restaurants due to border controls introduced by the government since late January which reduced the number of travellers. Strict safe distancing measures also caused a significant drop in footfall in malls.

As a result of the tough operating environment, Katrina has recorded a net loss of S$5.6 million in 1H FY2020. This can be seen from the jump in administrative cost and the high cost of sales which exceeds the Group’s revenue.

Despite a big jump in other income due to the government grants, which include Jobs Support Scheme and levy rebate, during the COVID-19 period, as well as the rental rebates and property tax rebates passed on by landlords, it was not enough to prevent the Group from sinking into the red.

Conclusion

The food & beverage services industry expects the business situation to be less favourable for Jul-Dec 2020, with a net weighted balance of -32%. The business sentiments have improved from the net weighted balance recorded in the previous quarter’s survey (covering the Circuit Breaker period) at -96% for food & beverage services for the period of Apr-Sep 2020.

While food & beverage services establishments can provide dine-in services during Phase 2 of re-opening, they expect business to be affected due to the safe distancing measures which do not allow them to operate at full capacity.

However, with the Government signalling its intention to increase the size of gathering from the current 5 to 8 in the upcoming Phase 3 of re-opening, this could have a positive boost for the food & beverage companies as they will be able to operate at a much larger capacity. The restaurant's operators could also welcome bigger group of patrons, potentially see higher spending from the bigger group, which will translate to higher revenue.