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Brokers’ take

This article is more than 12 months old

MAY 29 CLOSE: $0.365

UOB Kay Hian, May 29

After 10 years, Jumbo Group has two new Jumbo Seafood outlets in Singapore, one at Ion Orchard (December last year) and another at Jewel Changi Airport (last month).

While they are smaller outlets, they are located in areas with higher foot traffic and should more than offset the closure of the National Service Resort & Country Club Seafood outlet last year.

With Jumbo's strong brand equity and the tourist traffic flow, we believe the (new) outlet should be able to turn profitable within one to two months.

In addition, existing Jumbo Seafood outlets continued to fare well and the expansion of other brands are on track.

We think the closure of underperforming and low-margin stores while expanding through the franchise route should bump up margins.

We view the long-term growth prospects of Jumbo's expansion positively.

However, weakness in Chinese consumption could be a drag on Jumbo's growth in the short-term.

In addition, more aggressive marketing may be necessary to build brand awareness in the region which could result in higher marketing expenses.

We remain cautious on account of Jumbo's China exposure and will turn more positive when outlets begin to show better profitability.

Singapore operations should more than offset the weakness in the China market and provide for decent net profit growth of 17.6 per cent this year.

MAY 29 CLOSE: $2.45

CGS-CIMB, May 29

We think investors are not giving credit to Sembcorp Industries' energy (utilities) earnings and has unduly punished the stock due to weakness in Sembmarine's share price and order wins.

Sembcorp's India operations are seeing better days as Sembcorp Energy India Limited (Seil) 1 returned to optimal average plant load factor of about 73 per cent in the months of April and May as opposed to 58 per cent in Q1.

Lower coal cost (down 10 per cent since end-March) could continue to work in Seil 2's favour.

Excluding Sembmarine, Sembcorp is trading at 0.4 time FY2019 price-to-book value, below -1 standard deviation (sd) of its mean.

Sembcorp is second on the Straits Times Index to deliver the highest earnings recovery of 20 per cent and trades below -1 sd of its 10-year mean.

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