Brokers' call: Jumbo Group

JUMBO GROUP

Broker: Maybank Kim Eng

Call: Buy

Target Price: 58 cents

All indications are for Jumbo's China business to surge this quarter. Despite two new outlets, China had only a small loss in the first quarter of this year.

Every 10 per cent rise in sales is expected to translate into 33 per cent higher profits. As sales ramp up, the high operating leverage will lead to rising profits for every incremental dollar of sales. This means Jumbo's potential to outperform is high.

The management also reported that the latest IFC Mall outlet in Shanghai, which opened before Chinese New Year, is packed even post-festival, and on weekends.

More critically, the average bill per diner at this outlet is 368 yuan (S$78), 10 per cent higher than at IAPM Mall and 35 per cent higher than at Raffles City.

This means Jumbo's China business could turn profitable as soon as the second quarter of this year.


OUE HOSPITALITY TRUST

Broker: CIMB

Call: Hold

Target Price: 67 cents

OUE Hospitality Trust (OUEHT) has announced an underwritten and renounceable rights, whose proceeds of $238.6 million will be used mainly to fund the acquisition of the $205 million Crowne Plaza Changi Airport Extension (CPEX) as well as pare down debt.

CPEX is expected to be completed by the middle of this year. The Trust's gearing is expected to drop to 37.2 per cent by the end of the 2016 financial year.

The longer-term prospects of Crowne Plaza Changi Airport (CPCA) are positive.

CPEX will add another 243 rooms to the 320-room CPCA.

OUEHT is poised to benefit from the expansion plans of Changi Airport, which has started development for Project Jewel and Terminal 4, as well as having announced the planning of Terminal 5.

CPCA outperformed the market last year.


VALUETRONICS HOLDINGS

Broker: CIMB

Call: Buy

Target Price: 56 cents

Hong Kong-based Valuetronics is an electronics manufacturing services provider with strong design and development capabilities, with multinationals from Europe and the United States as customers.

Valuetronics has a dividend policy of a 30 per cent to 50 per cent payout ratio. The yield for financial years 2016 to 2018 is expected to be 6.6 to 8.3 per cent.

A potential catalyst is faster-than-expected client acquisition, while key risks are a severe economic downturn and higher-than-expected hike in labour costs in China.

A version of this article appeared in the print edition of The Straits Times on March 14, 2016, with the headline 'Brokers' call: Jumbo Group'. Print Edition | Subscribe