SINGAPORE (Feb 20): Maybank is maintaining its “buy” call on Jumbo with an unchanged price target of 70 cents even after the group’s 1Q18 earnings came in below expectations at only 12% of the research house’s FY18E forecasts and at 13% of consensus.
See: Jumbo posts 19.8% drop in 1Q earnings to $2.1 mil due to higher expenses
In a report last Thursday, analyst John Cheong says he expects the group’s earnings to catch up in 2Q18 and onwards in the absence of the start-up promotional costs registered in 1Q.
He also believes 2Q should see a surge in customer traffic for the new stores due to the festive Chinese New Year season, with two new outlets opened in late-4Q17 to notably improve earnings for the group as they begin to register full quarterly contributions.
See: Jumbo announces opening of first Jumbo Seafood franchise outlet in Taiwan
“It is noteworthy that topline growth was the best 1Q ever reported at 9.3% YoY. Strong revenue growth and new store openings bodes well for 2Q, as Jumbo enters the peak season, which typically forms 40% of full-year earnings,” says Cheong.
However, DBS is less optimistic on Jumbo’s near-term prospects following the 1Q earnings miss.
The research house is reiterating its “hold” recommendation on the stock while lowering its target price to 58 cents from 61 cents previously, after trimming FY18-19F earnings by 4-5% for each year.
According to DBS lead analyst Alfie Yeo, Jumbo is expected to continue incurring higher start-up costs from opening its new outlets until the new stores mature, especially given how the group is currently in an expansion phase and forming franchise and joint venture (JV) agreements regionally.
Looking at the group’s latest set of 1Q results, Yeo notes how staff costs and operating lease expenses have both registered increases such that operating margins have fallen by 1.7 ppt to 7.6%.
“We look to turn positive when most of the regional franchises and partnerships contribute more positively to overall earnings,” concludes the analyst.
As at 3:17pm, shares in Jumbo are trading flat at 58 cents or 5.3 times FY18E book.
