Jumbo enjoys robust outlook with expansion strategy, but China exposure may pose a problem
SINGAPORE (May 22): CGS-CIMB Research and UOB Kay Hian are maintaining their “add” and “hold” calls on Jumbo Group with target prices of 52 cents and 41 cents, respectively, after the group’s 2Q19 results came in line with both research houses’ expectations.
In a report last Wednesday, CGS-CIMB analyst Colin Tan says he expects the first Jumbo Seafood restaurant in South Korea, which is due to begin operations in 3Q19, to add to Jumbo’s growing franchise income stream going forward.
He is also positive on the group’s expansion plans through “less risky franchises” in the possible target markets of Shenzhen, Hong Kong, Macau and Indonesia.
“Our TP of 53 cents is based on 21 times FY20F P/E, slightly below regional peers’ average of 22.8 times. The stock currently trades at 16.2x FY20F P/E, below peers and historical average (27.3 times)… Upside catalysts include faster expansion of franchised outlets and better-than-expected earnings growth,” notes Tan.
On the other hand, UOB recommends an entry price of 37 cents -- pegged to peer average FY19F earnings of 20 times -- as it remains cautious of Jumbo’s China exposure.
However, the research house intends to turn positive on the stock once the group’s outlets begin to show better profitability
UOB analyst Yeo Hai Wei says while he is positive on the long-term growth prospects of Jumbo’s expansion, he believes weakness in China consumption is likely to drag on overall growth in the short-term.
“Jumbo had a soft launch of Chui Huay Lim which serves Teochew Cuisine. Located in Far East Square, the dining concept focuses on capturing the business dining and group gathering crowd. Jumbo's latest product offering is part of its plan to carve out a larger share of the premium diner's wallet. We are positive about this latest expansion as Jumbo is building on its portfolio of brand while maintaining thick gross margins,” comments Yeo.
Shares in Jumbo last traded 1.27% higher at 40 cents, or 3.75 times FY19F book value based on UOB estimates, prior to the midday trading break.
