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Edge: SAC Capital sees several growth drivers in initiation report for Jumbo Group

SAC Capital analyst Yeo Peng Joon has initiated coverage on Catalist-listed Jumbo Group with a “buy” call as he sees several growth drivers to the counter.

Yeo has also given the group a target price of 38 cents.

“The stock is currently trading at a forward P/E of 30.8x, and EV/EBITDA of 4.5x for FY2023 respectively,” he writes.

In his report dated Aug 1, Yeo is buoyant on the group’s prospects, seeing several growth drivers that include the sales rebound from pent-up domestic demand and tourist arrivals.

Other growth drivers include the rejuvenation of consumption demand at restaurants after two months of strict lockdowns in Beijing and Shanghai, the enlargement of the footprints of Jumbo Seafood and other brands in Asia through the group’s franchise model, as well as the potential for the group to raise its prices in an inflationary environment.

On the back of this, Yeo sees the group’s earnings to improve ahead to a smaller net loss of $5.7 million in the FY2022 and a net profit of $5.3 million in the FY2023 compared to the $11.8 million net loss reported in the FY2021.

That said, Yeo warns that the group may also face headwinds such as a shortage in manpower due to the low unemployment rate and stringent cap on foreign dependency ratio in Singapore, China’s zero-Covid-19 policy, as well as rising input costs due to the higher commodity prices.

“Thus far, Jumbo has been able to pass this on and maintain gross margin, but it could face resistance if the macro environment weakens,” the analyst notes.

In addition, the pressures of an economic recession may lead to consumers cutting back in their discretionary spendings, especially on high-ticket meals, which could also dampen Jumbo’s sales.

As at 3.57pm, shares in Jumbo Group are trading 2.5 cents higher or 9.804% to 28 cents, with the surge seen around 2pm.

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