Jumbo Group (JUMBO SP) - DBS Research 2018-02-15: Earnings Affected By Higher Costs

Jumbo Group (JUMBO SP) - DBS Vickers 2018-02-15: Earnings Affected By Higher Costs JUMBO GROUP LIMITED 42R.SI

Jumbo Group (JUMBO SP) - Earnings Affected By Higher Costs

  • 1Q18 slightly below on higher-than-expected costs.
  • Trim FY18-19F earnings slightly by 4-5%.
  • Await contributions from franchises and partnerships to come in before turning positive.
  • Maintain HOLD with lower Target Price of S$0.58.

What’s New 

1Q18 slightly below. 

  • Jumbo Group's 1Q18 earnings of S$2m slightly trail our FY18F estimates. 
  • Revenue came in at S$S$35.7m (+9.3% y-o-y), driven by the group’s China operations, which saw contribution by its first Beijing and fourth Shanghai restaurants. 
  • Gross margins was 62.7%, flat sequentially but 1.5ppt lower than 1Q17’s 64.2% on higher raw-material and consumables costs. 
  • Operating profit declined 11.3% y-o-y to S$2.7m on higher opex.

Higher costs. 

  • Staff costs increased 12% to S$11.3m while operating lease expenses increased 8% y-o-y to S$3.5m.
  • Other operating costs including depreciation and utilities also increased, albeit by a lower magnitude. 
  • Overall opex including other income hence increased 9.7% y-o-y to S$19.7m. Operating margins consequently fell to 7.6% (- 1.7ppt).

In expansion phase. 

  • We note that Jumbo is currently in an expansion phase and forming franchise as well as JV agreements regionally, while incurring higher start-up costs from opening new outlets. Costs are therefore expected to be higher until the new stores mature.

Maintain HOLD, with lower S$0.58 TP. 

  • We have trimmed our FY18-19F earnings by 4-5% for each year, after 1Q18 numbers trailed our forecast slightly. Our Target Price, based on 23x FY18F PE, is hence lower marginally at S$0.58. 
  • We look to turn positive when most of the regional franchises and partnerships contribute more positively to overall earnings.

Alfie YEO DBS Vickers | Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2018-02-15
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.58 Down 0.610