Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2018-01-04: NDR Highlights ~ Growth Targets And Operations Update

Jumbo Group Ltd (JUMBO SP) - Maybank Kim Eng 2018-01-04: NDR Highlights: Growth Targets And Operations Update JUMBO GROUP LIMITED 42R.SI

Jumbo Group Ltd (JUMBO SP) - NDR Highlights: Growth Targets And Operations Update


Franchising, China expansion and operations update 

  • We hosted a NDR for JUMBO in Singapore. Key discussions included:
    1. franchising growth strategy, which is expected to accelerate after laying a firm foundation for the system and staff;
    2. expansion goals in China, after building a reputable brand name and system to ensure consistent quality; and
    3. operations update, especially new outlets in China and Taiwan that have been delivering good performance. 
  • Maintain BUY and DCF TP of SGD0.70, implying 26x FY18E EPS, on par with regional peers.



Accelerating the expansion of franchising business 

  • JUMBO plans to accelerate the opening of new Jumbo Seafood outlets via franchising from FY18 onwards, increasing from 1 new outlet a year to 4 new outlets a year. It expects its franchise business to contribute more than 20% of earnings from zero currently in the next 3-5 years. 
  • In FY17, JUMBO invested considerable resources to build up its franchising system and management staff. It highlighted that the key success factors and value-add include:
    1. ensuring franchisees achieve profitability and maintain consistent quality via training, regular audits, and supply of key sauces;
    2. selecting the right strategic partners who are either F&B players or property developers; and
    3. continuous improvement via various feedback channels.


Positive expansion in China 

  • JUMBO has managed to build a reputable brand name in China due to its high exposure to Chinese tourists in Singapore and established presence in China (c.5 years). This has helped to achieve profitability in less than 3 months, from 9-12 months previously. 
  • It aims to open more outlets within and beyond its home cities of Shanghai and Beijing. Other cities under consideration include Shenzhen, Xi’an, Chengdu and Nanjing.


Operations update: excellent performance in Taiwan 

  • The new Jumbo Seafood outlet that opened in Taiwan in Dec 2017 has shown good performance with a full house almost every day, thanks to the extensive media coverage and good location. 
  • In addition, business at the new outlet in Shanghai has been picking up after a slow start due to the lack of marketing and a less visible location.


Swing Factors


Upside

  • Better-than-expected Singapore and China sales, especially from new outlets.
  • Lower-than-expected food and staff costs that could lead to better-than-expected margins.
  • Expectations of higher dividends or articulation of a dividend policy.
  • Expansion success, especially in overseas markets, such as China, Taiwan and Vietnam.

Downside

  • Any changes in China’s food-safety laws that could affect China’s imports of mud crabs.
  • Shortage of critical ingredients for its signature dishes: crabs, other seafood.
  • Epidemics or health scares that can damage its reputation, eg mass food poisoning, salmonella.
  • Poor execution of expansion, including major delays in opening of and longer-than-expected breakeven for new outlets.




John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-04
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.700 Same 0.700



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