SINGAPORE (Feb 15): CGS-CIMB Research is maintaining its “add” call on Jumbo Group while lowering its target price to 52 cents from 54 cents previously to reflect 2-3% lower FY20-21F EPS on the account of weaker China operations.

The latest price target is pegged to 21 times FY20F P/E versus the regional peer average of 20 times.

This comes after the restaurant chain operator reported 15.7% higher 1Q19 earnings of $2.4 million, in line with the research house’s expectations at 18% of its FY19F estimates, considering how the 1Q is seasonally weak.

In a Thursday report, analyst Colin Tan says he believes Jumbo Group’s earnings has bottomed out in FY18, and could  grow ahead on stronger profit contributions from its Singapore F&B outlets as well las more franchised outlets overseas.

“Another Jumbo Seafood outlet could be launched within the next six months and plans are underway for one new Teochew cuisine restaurant and two more Tsui Wah outlets in Singapore, the company said. The group may also expand its network of franchised F&B outlets overseas, under its JUMBO Seafood and Ng Ah Sio Bak Kut Teh brands, in Asia,” says Tan.

While the analyst acknowledges that the earnings growth in Jumbo’s Singapore F&B segment could be marred by weaker contributions or losses from its business in China, the impact of this could be limited, in his view, as Singapore accounts for the bulk of profit contribution.

“The stock is trading at 18x 12M forward P/E, below its historical average (27x) and regional peers’ average (23x)… Upside catalysts include faster expansion of franchised outlets and better-than-expected earnings growth. A key risk is escalation in operating costs,” notes Tan.

As at 4:22pm, shares in Jumbo are trading flat at 42 cents or 3.74 times FY19F book.