Sunday, 17 September 2017


I have been monitoring Jumbo's stock for the past few months. After a spectacular run up since its IPO, Jumbo's share price hit an all time high of $0.79 earlier this year. At that point, Jumbo stock was trading at a P/E ratio of 30, which reflected the market's strong optimistic sentiment, along with expectations that Jumbo would continue to report strong growth in its earnings. After two quarters of reporting flat earnings, Jumbo's share price has tumbled to a 52-week low of $0.53. 

This shows us how emotion driven the market can be in the short term - within slightly more than 6 months, the variance in price is close to 50%. Either the market had grossly overvalued Jumbo back in late 2016, or Jumbo is at fair value or undervalued today. Jumbo's underlying fundamentals didn't change much, the only factor that changed was the market's optimism. While Jumbo has increased its earnings year on year, the rise has not been up to market expectations. 

Business Overview

Jumbo operates 16 restaurants in Singapore and 3 in Shanghai under the brands which include JUMBO Seafood, JPOT, Ng Ah Sio Bak Kut Teh, Chui Huay Lim Teochew Cuisine and J CafĂ©. An interesting point to note would be that the Jumbo Seafood Restaurants contribute the largest proportion to revenue, at 77%. Jumbo has also ventured into the Vietnamese market through a franchise agreement in Ho Chi Minh City, and seeks to expand its network in China and other cities in Asia.

Source: Jumbo Corporate Presentation, May 2017

Personally, I have dined Jumbo Seafood, JPOT and Ng Ah Sio Bak Kut Teh. My personal observation is that while Jumbo Seafood and JPOT outlets are usually popular, Ng Ah Sio lacks the differentiating factor compared to other Bak Kut Teh eateries. I am unable to find financial information to compare the profitability of the different brands, but I assume that Jumbo Seafood probably has the highest margins. 

Perhaps Jumbo would be better off closing down some of the non-performing outlets, which would reduce its operational costs. Furthermore, I doubt many customers are actually be aware that Ng Ah Sio is affiliated to Jumbo.

Growth Strategy

Jumbo has successfully ventured into China, with 3 restaurants in Shanghai. Currently, only 17% of its revenue is contributed by its restaurants in China. 

Source: Jumbo Corporate Presentation, May 2017

Leveraging on Jumbo Seafood's strong brand reputation, Jumbo seeks to expand further to other Chinese cities such as Beijing and Shenzhen, either through join ventures or franchising. This positions Jumbo well to ride on the expected increase in purchasing power of the Chinese middle class. As the Chines middle class becomes more affluent, demand for higher end dining options would increase, and the proportion of revenue from China would be larger.

Jumbo has also opened a franchise outlet in Vietnam, and plans to further expand their network there, with three more planned openings of JUMBO Seafood outlets there within the next two years. I believe that this is the right strategy, as licensing a franchise is an asset light model, which reduces start up costs. Based on the local consumers' response to the franchise outlet, the company can then decide on whether it is viable to expand in the country.

These growth plans, if executed smoothly, would materially add to Jumbo's earnings. If successful, we could well see Jumbo transform into a region wide restaurant chain within the next few years.

Financial Performance

For 3Q 2017, Jumbo's net profit fell by 1.1%. The market's reaction to its second quarter results was strong, sending its share price down by 5% after the results were announced. 

Jumbo 3Q Financial Results

Revenue increased by 6.4%, however, this was offset by the rise in operating lease expenses and depreciation 24.5% and 29.8% respectively. I'm not too concerned about the rise in depreciation, as a higher depreciation has to be booked along with new outlets opened. Depreciation is a non-cash expense and does not affect Jumbo's free cash flow. For the higher operating lease expenses, I believe that this is also expected as new outlets generally need some time to breakeven, which would incur higher operating expenses initially. 

As a result, even though revenue increased, Jumbo's net profit was flat. Net profit did not fall much, which indicates that there hasn't been a huge change in fundamentals, yet the share price tumbled. This is probably because Jumbo missed investors' expectations, rather than a deterioration of fundamentals.

Financial Strength

Jumbo's balance sheet remains robust, with $48 million in cash and cash equivalents as at 30 June 17, and no borrowings. Jumbo continues to generate strong operating cash flows, which has been able to cover its capital expenditures for the past two financial years. This gives Jumbo a positive free cash flow. However, if Jumbo continues to execute its ambitious expansion plans, Jumbo may probably have to dip into its cash pile or borrow to fund future capital expenditures. As operations at new outlets ramp up, this would further strengthen Jumbo's cash generating abilities.

Possible Risks

Apart from a sharp slowdown of our local economy or some economic crisis in China, I can't really think of any significant risks to that would severely affect Jumbo's business. There is probably some execution risk involved as Jumbo carries out its expansion plans, as new outlets may take longer to breakeven and incur some operating losses for a longer than expected time period. Another possibility is that when entering new markets, Jumbo may not appeal strongly to the local consumers.

An unlikely but damaging scenario that a friend pointed out would be that consumers avoid eating crabs due to some scientific research or epidemic, which I believe is an extremely low possibility.


After the recent correction, Jumbo's price to earnings ratio has dropped to 21. While this is still relatively high compared to many other stocks, I believe that it is decently price for a company with strong growth prospects. Furthermore, companies in the food and beverage industry generally trade at higher price multiples, probably due to the perceived stability of the industry. 

As investors re-evaluate the prospects of Jumbo, I feel that its current share price presents us with an attractive opportunity to purchase a well run company with substantial growth.

Note: I am vested in Jumbo at $0.54 

Sunday, 10 September 2017


1) Divested NetLink Trust at $0.805, because I expected the cessation of the stabilising purchases to have an adverse impact on the share price, similar to HRnetGroup two months ago. However, on hindsight, this was a speculative decision and probably shouldn't have been a strong reason to exit, given that the fundamentals haven't changed and NetLink's dominant position in the fibre broadband market. 

Since my divestment, NetLink's share price has risen by around 4-5%. The strong performance recently can probably be attributed to expectations that the pace of rate hikes will be slowed, which benefits high dividend yielding stocks, as well as recent tensions around the Korean Peninsula encouraging investors to rotate into less 'cyclical' stocks.  

Thankfully, my loss was a rather insignificant, given that I bought the shares during IPO. This was probably a good learning experience to resist the urge to make speculative trades, and focus on the fundamentals of the company.

2) Redeployed some of my available capital by initiating a small position in Far East Orchard at $1.52. FEO's property development segment may be small relative to the more established property developers in Singapore, but I expect the recovery of the local property market, as evident from the increasing number of en bloc sales, to benefit FEO. The en bloc market here is heating up, with the Tampines Court transaction completed and more developments being put up for collective sale. These are signs that developers expect the property market to pick up, and private home sales has rebounded to a 4-year high.

FEO has been a laggard among the developers, with Capitaland and CityDev showing strong performance this year, and more recently GuccoLand and Frasers Centerpoint too. FEO has been consolidating around the $1.50 level for more than a year already, and I expect FEO to follow the property market to emerge from its lengthy slump.

Furthermore, with the hospitality segment picking up and supply tapering off in 2018, these factors will also benefit FEO's hospitality management segment. With the combined recovery of the property and hospitality segments, it should only be a matter of time before FEO retests the $2.00 level.

3) With the recent correction due to North Korean provocations, some stocks on my watchlist include SATS, Raffles Medical, Jumbo, SingTel, QAF, Sheng Siong, ComfortDelGro and Mapletree Commercial Trust. With the exception of MCT, these stocks are trading close to their 52-week lows, which may present some opportunity. I will post more detailed reports of them if I have the time, as I have been quite busy with school work. 

Recently, I have also been successful in my application to join my school's investment club, which is a great opportunity to further my knowledge on research and valuations.

Tuesday, 22 August 2017


SBF Centre
Source: Far East Orchard Website

Company Profile

Far East Orchard is a diversified real estate owner and developer and manages a portfolio of hospitality assets. Its business segments can mainly be split into the Hospitality and Property segments.

Hospitality Management

Far East Orchard owns 10 and manages 90 hospitality assets worldwide, comprising of more than 13,600 rooms. Countries that Far East Orchard has a presence in include Singapore, Australia, Germany, Denmark and Malaysia.

Property Development

Develops properties mainly through joint ventures, previous developments include euHabitat and SBF Centre.

Property Investment

Far East Orchard generates rental income and capital appreciation from its portfolio of medical suites at Novena Medical and Specialist Centre, Singapore's premier medical hub, as well as student accommodation facilities in the UK and offices at Tanglin Shopping Centre.

Second Quarter Performance

Net profit fell 97.3% for the quarter, but the market's reaction was rather muted. For 1H 2017, net profit fell 87.7%. Last year's income was boosted by recognition of profits from SBF Centre, which is a joint venture development project. Revenue fell mainly due to the completion of lease agreements in Australia and New Zealand, and weaker performance from hospitality assets in Perth due to the challenging operating environment.

While earnings per share for 1H 2017 was 1.56 cents compared to 13.12 cents in 1H 2016, Far East Orchard's balance sheet still has development properties worth $23.6 million and properties held for sale valued at $124 million, which have yet to be recognised. The revenue from these properties will be recognised when the properties are transferred to the buyers. Hence, for FY 2017, including Far East Orchard's share of income from joint ventures, I expect
earnings per share to be comparable to previous years' of around 7 cents.

Financial Strength

As at 30 June 2017, Far East Orchard's balance sheet had $179.9 million in cash and cash equivalents, compared to total borrowings of $206 million. While this puts Far East Orchard in a slight net debt position, this is still a much better financial position compared to other developers. Far East Orchard's debt to equity ratio of 16.4% is also better compared to Capitaland's 58.3% and City Developments 46.9%. This means that Far East Orchard would be least affected by rising interest rates.

One Year Outlook

Hospitality Segment

Outlook for hospitality segment in Singapore to remain weak due to oversupply affecting revenue per available room. However, a potential turnaround may happen in 2018, as supply tapers off, according to this article published by SGX. Furthermore, Far East Hospitality Trust, which is managed by Far East Orchard, has gained 10% year to date, whereas Far East Orchard is still flat. There might be a potential upside as valuations remain low.

For Australia, increasing tourist arrivals is expected to drive demand. However, growth may differ among cities, with Sydney expected to be the strongest performer, while Melbourne, Perth and Brisbane may face oversupply issues.

Property Segment

Capitaland YTD share price
Source: Google Finance 
City Developments YTD share price
Source: Google Finance 

Earlier this year, Singapore listed property developers such as Capitaland, City Developments rallied in anticipation that certain property cooling measures may be removed. Far East Orchard's share price has remained relatively stagnant, as this is probably because it is not purely a property developer. In 2016, Far East Orchard's property development segment contributed no revenue. The local property market may be showing signs of recovery after a multi-year decline. Far East Orchard's joint ventures, Woods Square, RiverTrees residences and Harbourfront Balmain are on track and hitting sales targets. On the balance sheet, development properties and properties held for sale are 23.6 and 142 million respectively, and would contribute significantly to net profits when they are recognised.

In the UK, Far East Orchard is also developing student accommodation properties in Newcastle and Brighton. According to Knight Frank, this segment is expected to grow by 2.6% this year. Demand for student accommodation is more resilient to economic cycles, and we can expect a steady stream of recurring income. However, investors should note the possibility of foreign exchange risks, as the Pound may be further weakened should Brexit negotiations turn out to be unfavorable for the UK.


Price to Book RatioDividend Yield %
Far East Orchard0.533.97
City Developments1.160.70
Frasers Centerpoint0.824.43
Wing Tai0.531.42
Ho Bee0.542.50

Far East Orchard has been paying out consistent dividends of 6 cents annually for the past 4 years. At the current price of $1.51, this gives a dividend yield of 4%. With a net asset value of $2.89, Far East Orchard trades at a significant discount of a price to book ratio of 0.53, compared to 0.9 for Capitaland, 1.14 for City Developments and 0.82 for Frasers Centerpoint. While noting that the market has priced Far East Orchard below its net asset value for a number of years, from a dividend perspective, investors waiting for the net asset value of Far East Orchard to be unlocked would still receive 4% in dividends annually.

Liquidity Risk

As of 4th July 2017, Far East Organisation owned 60.64% of the shares of Far East Orchard. Shares of Far East Orchard are thinly traded, with bid-ask spreads of a few cents at times. Investors holding these shares may face liquidity risk and be forced to sell at a lower price should they require cash urgently.

Note: I am vested in Far East Orchard at a price of $1.52.