Although the group’s new stores are expected to contribute to its topline through joint ventures (JVs), partnerships and franchises, the analysts say these have already been largely reflected in DBS’ growth projections.
Yeo and Sim believe the stock is currently trading in-line with regional peers at 20 times FY18F, and therefore recommends that investors hold on to the stock until valuations become more palatable.
According to the analysts, potential catalysts include faster-than-expected outlet expansion, especially in China, as well as regional franchises provided that the group’s cost structure does not deteriorate considerably.
Additionally, an increased number of franchise outlets will also deliver better margins and growth for the group once its total outlet number attains what Yeo and Sim call “critical mass”.
“We see earnings growing at a slower pace than consensus. This is largely due our expectations of higher operating cost structure ahead, led by rents and depreciation,” say the analysts.
“Apart from operational risks, we see failure to deliver growth in China as a key risk to our earnings growth projection. [Jumbo’s Singapore business] is stable, while the bulk of the growth is driven by China,” they add.
As of 3.27pm, shares of Jumbo are trading 2 cents lower at 56 cents.
