SINGAPORE (Dec 13): Maybank Kim Eng has resumed coverage of restaurant operator Jumbo Group with a “buy” and target price of 70 cents, which implies 26 times FY18E earnings per share (EPS) – on par with its regional food and beverage (F&B) peers.
In a Tuesday report, analyst John Cheong notes that the stock is trading at 21 times FY18F EPS, a discount to regional peers’ 26 times despite having superior ROEs and margins. He also explains that DCF valuation is used to derive its latest target price to capture the full value of Jumbo’s expansion potential that could materialise over more than a year.
Cheong is positive on Jumbo mainly due to the successful foothold it has gained in China, which he attributes to the group’s consistent quality.
In particular, he highlights “rapid profitability” from the Beijing outlet in just one month after opening in Jul 2017, which the analyst believes to demonstrate the Chinese consumer’s confidence in Jumbo’s brand and execution skills.
“China contributed 18% or SGD25m to its FY17 revenue, up from 6% or SGD7m in FY14. We expect contributions to exceed 30% by FY20E. Since 2014, Jumbo has been adding one net outlet a year,” comments the analyst.
“Outside China, it now aims to expand through franchises and JVs, which should allow it to harness the strength of its value-adding partners and reduce upfront costs… On On top fo that, it has identified five other potential markets: Thailand, Indonesia, Hong Kong, Macau and Korea,” he adds.
Looking ahead, Cheong expects catalysts from a three-year EPS CAGR of 15%, backed by the opening of more new outlets, low upfront costs for expansion through joint ventures (JVs) and franchises, as well as operating leverage to cover additional head-office costs.
As at 10:16am, shares in Jumbo are trading 1 cent higher at 60 cents, or 21.93 times FY18E core P/E.
