SINGAPORE (Feb 14): UOB Kay Hian is maintaining a “hold” rating on Jumbo Group even as the restaurant operator posted a 26% earnings growth in 1QFY17.
According to UOB Kay Hian’s analyst Nicholas Leow, the earnings boost arose from the one-off IPO expenses and pre operating expenses for its third Jumbo Seafood restaurant in Shanghai that was incurred in 1QFY16, and did not repeat in the current quarter.
While the quarterly earnings only achieved 14% of UOB Kay Hian’s full year estimates, Leow added that the group’s 1Q and 3Q are seasonally weaker quarters.
Group revenue had risen 5.8% to $32.7 million from high contributions at its Chinese outlets, and gross margins rose by 1.3 percentage points to 64.2% as the group continued to manage its costs and improve productivity.
At the same time, employee benefit expenses rose 9.5% on a higher headcount and higher staff renumeration, and operating leases expenses rose 10.2% on leases from new outlets, outlet expansions and new corporate offices in Shanghai and Singapore.
Growth in Jumbo is expected to come from its geographical expansion in other major Asian cities through franchising, says Leow in a note on Tuesday. The group has already secured its first franchise agreement for Jumbo Seafood Restaurants in Ho Chi Minh City and Danang in Vietnam for a 10 year period.
“We have not factored in any potential contribution from franchising opportunities and elect to wait for further clarity,” said Leow, who has a 65 cents price target on the stock.
Shares in Jumbo are trading at 72.5 cents on Tuesday.
