Jumbo Group - Maybank Kim Eng 2016-09-27: Buy ahead of seasonal peak & franchising catalyst

Jumbo Group - Maybank Kim Eng 2016-09-27: Buy ahead of seasonal peak & franchising catalyst JUMBO GROUP LIMITED 42R.SI

Jumbo Group - Buy ahead of seasonal peak & franchising catalyst


U/G to BUY; TP raised from SGD0.69 to SGD0.78 

  • We upgrade Jumbo from HOLD to BUY with a higher blended DCF-P/E TP of SGD0.78 (WACC 7.7%, LTG 1%, 20x FY17E P/E) or 40% upside as we lower our beta assumption from 1.2x to 0.9x. 
  • We think Jumbo is the stock to own as we head into its seasonal 4Q peak. 
  • Potential catalysts to look forward to in the next three months include its franchising business development efforts which should yield concrete results by early 2017. 
  • Jumbo has already identified the markets it wants to penetrate, the brands it wants to export and the partners it wants to work with. 
  • Our estimates suggest a potential 4-7% lift to FY18E EPS in a conservative scenario, 10-17% at the base case and 20-33% at the high end.


Changes to TP assumptions 

  • We made no changes to our forecasts. However, we lifted our blended DCF-P/E TP from SGD0.69 to SGD0.78 as we updated our beta assumption from 1.2x to 0.9x. 
  • We used 1.2x when we initiated on the stock in Jan 2016 and at that time, historical data was insufficient. Since then, Jumbo’s beta has been estimated to be 0.9x, similar to Sheng Siong’s 0.8x.


Swing Factors


Upside

  • Better-than-expected Singapore and China sales, especially from new outlets.
  • Lower-than-expected food and staff costs that could lead to better-than-expected margins.
  • Expectations of higher dividends or articulation of a dividend policy.

Downside

  • Any changes in China’s food safety laws that could affect China’s import of mud crabs.
  • Shortage of critical ingredients for its signature dishes: crabs, other seafood.
  • Epidemics or health scares that can damage its reputation or cuisine eg mass food poisoning, salmonella.




Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-09-27
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 0.78 Up 0.690



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