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DBS sees Jumbo as 'fully valued'; RHB maintains 'sell' as it sees 'long road to recovery'

Felicia Tan
Felicia Tan • 3 min read
DBS sees Jumbo as 'fully valued'; RHB maintains 'sell' as it sees 'long road to recovery'
At 27x FY2021F price-to-earnings (P/E), DBS analyst Alfie Yeo believes the counter is currently “overpriced”.
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DBS analyst Alfie Yeo has recommended “fully valued” on Jumbo Group with a maintained target price of 21 cents after the restaurant operator reported a $8.2 million loss for the FY2020 on Nov 27.

At 27x FY2021F price-to-earnings (P/E), Yeo believes the counter is currently “overpriced”.

“At the current share price, the market is expecting earnings to stage a strong turnaround to $10.3 million profit based on a normalised 20x forward P/E,” he says, viewing the figure as being too optimistic.

In contrast, Yeo expects Jumbo’s earnings to rebound to $7.6 million, which is below consensus as he has factored in expectations of a slower recovery.

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However, he believes its share price will be re-rated when tourists return to Singapore, leading to an increase in footfall in its restaurants.

That said, Yeo anticipates a slow recovery for Jumbo for the time being, amid a measured and gradual easing of circuit breaker restrictions.

“Visibility for earnings recovery remains poor for now,” he notes.

“Including operational risks, we see China’s failure to deliver earnings growth as a key risk to our earnings growth projection,” he adds.

“We believe Jumbo’s outlook will continue to be challenging in the immediate term, as mass tourists are unlikely to return. Our forecasts remain largely unchanged, factoring in a gradual recovery as border restrictions open up and tourists return in the next few years,” he concludes.

RHB analyst Juliana Cai shares Yeo’s sentiment, as she maintains her “sell” rating on the counter.

Cai’s target price projection of 19 cents has also remained, as Jumbo’s results came in below market expectations.


See:Analysts more bullish on ThaiBev despite weak FY20 results

“Moving into FY2021F, we remain pessimistic on the outlook, as the bulk of Jumbo’s businesses are dependent on tourist visits and large-scale gatherings, which are likely to take some time for a full recovery,” she says.

On Jumbo’s reliance on tourist spending and corporate dining, Cai expects a soft FY2021F revenue outlook due to cautious business sentiment and the lack of international travel.

While Jumbo sees a stronger recovery trend in China after months of positive momentum in sales and the closure of its underperforming outlet in Raffles City, Shanghai, Cai says these should help “narrow losses and chart a turnaround for its China operations”.

For now, she views the recovery in Jumbo’s share price as “unjustified” due to the long and slow route to earnings recovery.

“We understand from management that the business was still not profitable in 4QFY2020 (phase 2 of Singapore’s economic reopening). Hence, we cut our FY2021-2022F earnings by 81-45% to account for weaker-than-expected recovery,” she says.

“Our DCF-derived target price is maintained due to reduction in capex for cash conservation,” she adds.

As at 4.50pm, shares in Jumbo are trading flat at 33 cents.

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