Continue reading this on our app for a better experience

Open in App
Floating Button
Home Capital Broker's Calls

Jumbo to continue facing near-term cost pressures with ongoing expansion: DBS

Michelle Zhu
Michelle Zhu • 2 min read
Jumbo to continue facing near-term cost pressures with ongoing expansion: DBS
SINGAPORE (Aug 14): DBS Group Research is maintaining “hold” on Jumbo Group with a lower target price of 57 cents based on 23 times FY19F earnings.
Font Resizer
Share to Whatsapp
Share to Facebook
Share to LinkedIn
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

SINGAPORE (Aug 14): DBS Group Research is maintaining “hold” on Jumbo Group with a lower target price of 57 cents based on 23 times FY19F earnings.

This comes after the group’s latest 3Q18 set of results missed DBS’s expectations due to slightly lower-than-projected revenue and higher costs.

To recap, Jumbo’s earnings fell 35% y-o-y to $2.2 million over the latest quarter under review, booking lower gross margins due to higher fresh seafood costs and promotional prices in its new Jumbo Seafood outlets in China. The group also registered higher-than-expected operating expenses due to the expansion of China’s corporate office and marketing expenses.

In a Tuesday report, analyst Alfie Yeo says he sees the latest 3Q18 numbers as a reflection of Jumbo’s expansion phase.

This has prompted him to cut FY18-20F net profit forecasts by 5-13% on expectations of cost pressures in the near-term.

“Jumbo has increased its footprint very quickly since listing at end-2015… Costs have therefore increased in line with expansion plans. Growth and earnings contribution should kick in once new outlets become profitable,” explains Yeo.

Yeo’s projections come in below the consensus largely due to his expectations of a higher operating cost structure ahead, led by rents and depreciation.

Nonetheless, the analyst believes faster-than-expected outlet expansion for Jumbo, especially in China, and regional franchises would serve as potential catalysts for the stock going forward – provided that its cost structure does not deteriorate considerably.

“More franchise outlets should also deliver better growth once the number of outlets attain critical mass,” he adds.

As at 1.15pm, shares in Jumbo are down by 1.5 cents at $0.52.

Highlights

Re test Testing QA Spotlight
1000th issue

Re test Testing QA Spotlight

×
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
© 2024 The Edge Publishing Pte Ltd. All rights reserved.