Broker's take: DBS downgrades Jumbo to 'hold' on Covid-19 impact to earnings

DBS Group Research has downgraded Jumbo Group to "hold" from "buy", with a lowered target price of S$0.18, from S$0.38 previously.

As at 10.09am on Wednesday, Catalist-listed Jumbo Group shares were trading at 21 Singapore cents, up 1.2 cents or 6.1 per cent.

The research house believes it could take time for the seafood restaurant's operations to normalise, hence the downgrade. Jumbo's share price has also taken a severe beating, DBS noted.

Travel restrictions, the authorities' call for social distancing and a slowdown in China are expected to impact Jumbo's forecast for the 2020 financial year.

Analysts Alfie Yeo and Andy Sim expect the group's China business to head back into losses for 2020.

The analysts also slashed their earnings forecast for Jumbo's FY2020-2021 by another 31 to 58 per cent. This factored in lower revenue traction from Singapore and China, outlet rationalisation and lower margins on relatively fixed operating costs.

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"We believe share price could lag the market when the current pandemic blows over," they added.

That said, Jumbo's strong balance sheet and seven Singapore cents net cash as at September 2019, which is around 38 per cent of its market capitalisation, should help the group weather through the Covid-19 storm.