Nomura: Jumbo Group profit to rebound sharply ahead

Singapore chilli crab icon Jumbo Group’s profit is set to “rebound sharply” in the current fiscal year after a relatively weak fiscal 2018, Nomura said in a note on Friday.

Nomura raised its fiscal 2019-20 net profit estimates by 2 percent to 4 percent on expectations of better profitability in China and a higher-than-expected franchise contribution as its franchise base has grown.

It forecast fiscal 2019 profit would rebound by 19 percent on-year to S$13 million, adding that if China operations beat the bank’s projections, it could grow by more than 30 percent on-year.

Jumbo Group reported last week that its fiscal full-year net profit fell 23.8 percent on-year to S$11.02 million, despite higher revenue, as its expansion increased expenses.

Nomura said that was largely in line with its estimates, although it was below consensus’ forecasts due to higher-than-expected operating costs.

The investment bank said it expected three store openings in fiscal 2019, with the first potentially as early as the end of the fiscal first quarter, and it added it was optimistic the second and third stores could open by the fiscal third quarter. It noted three new franchise stores have been announced recently, with two to three more potentially in the pipeline.

It kept a Buy call on the stock, saying its trading at a fiscal 2019 price-to-earnings ratio of 19.8 times, below its historic mean and at a discount to its regional peers, despite a higher return on equity (ROE).

“We believe Jumbo should trade at a premium given our expectations of a higher fiscal 2019 earnings per share profile within a developed market,” Nomura said.

It added that it was confident in Jumbo’s growth prospects, pointing to it as a play on a trend of increased food tourism.

But it trimmed its target price to S$0.58 from S$0.59 on higher-than-expected working capital needs.

The stock ended Friday at S$0.41.

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