Jumbo's appetite for expansion could prove good for growth

Jumbo's appetite for expansion could prove good for growth
As at last month, the JUMBO group had 15 F&B outlets in Singapore and three F&B outlets in China under five restaurant brands. It also manages one Singapore Seafood Republic outlet
PHOTO: The Straits Times

Restaurant group JUMBO Seafood could prove promising for investors as the chain sharpens its focus on expanding in China and the rest of Asia.

While the food-and-beverage (F&B) industry in Singapore is expected to remain challenging due to the slowing economy and stiff competition, some analysts are upbeat on the counter, pointing to its ongoing plans to grow its footprint outside of its home base.

"We expect revenue to be driven by more store openings in the medium (term), especially in China," wrote DBS Group Research analysts Alfie Yeo and Andy Sim in a recent report.

"In Singapore, there will be scope for one or two more outlets, with one JUMBO Seafood outlet to be located in the business district.

"JUMBO is also negotiating for franchise and joint ventures in other parts of Asia. These should drive robust earnings growth over the next two years."

The analysts, who have a buy call on the stock with a target price of 77 Singapore cents, expect at least one franchise or joint-venture deal in FY17.

Even as consumers tightened their belts, JUMBO's FY16 earnings remained resilient, thanks to its marketing positioning and management of costs, noted Maybank Kim Eng analyst Gregory Yap.

Sales in Singapore were down 4 per cent in Q4 due to the outbreak of the Zika virus but were up 4 per cent for the whole of FY16.

"Overseas expansion and growth potential from overseas markets are intact and now include franchise and joint-venture possibilities," added Mr Yap, who has a target price of 78 cents.

"We forecast 22 per cent growth for FY17. We expect continued upside overseas especially from China."

About 18 per cent of revenue presently comes from China.

Shares in the Catalist-listed group, which was listed in November last year, were sold at 25 cents each at its initial public offering.

As at last month, JUMBO had 15 F&B outlets in Singapore and three F&B outlets in China under five restaurant brands: JUMBO Seafood, JPOT, NG AH SIO Bak Kut Teh, Chui Huay Lim Teochew Cuisine, and J Cafe.

It also manages one Singapore Seafood Republic outlet.

But it is probably best known for its signature crab dishes; the group serves over 1.6 tonnes of crab daily.

For the financial year ended Sept 30, 2016, the restaurant group posted a 46 per cent jump in net profit to S$15.5 million, on the back of an overall increase in net profit, co-operative ventures and a restructuring exercise where a formerly partially owned subsidiary became fully owned by the company.

Revenue rose 11.4 per cent to S$136.8 million on the back of higher contributions from existing restaurants as well as contributions from two new outlets in Shanghai.

Gross profit margin edged up slightly to 63.2 per cent, up 0.3 percentage point.

In its financial results, the group said that it plans to capitalise on its experience in Shanghai over the last three years to expand its brands to other key cities in China.

Here in Singapore, the group recently expanded its Riverside JUMBO Seafood outlet by 50 per cent and opened its fifth NG AH SIO Bak Kut Teh outlet.

At the latter, it has rolled out self-ordering and payment kiosks, and a tray-return system to generate cost savings amid a tight labour market at home.

Meanwhile, the group paid a higher-than-expected total dividend of 1.7 Singapore cents in FY16, which included a special dividend of 0.7 cent.

Analysts have, however, flagged some risks, such as the potential weakening of the Chinese yuan which would affect import costs of crabs and hit earnings via currency translations and any drop in tourist arrivals.

A weak performance in China is another possible factor that could weigh on the group.

But as long as its expansion efforts remain on track  and continue to pay off JUMBO could end up serving up some good returns for shareholders.

This article was first published on December 28, 2016.
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