Jumbo Group’s China growth strat­egy

Singapore Business Review - - CONTENTS -

Jumbo group may be known for its jumbo chili crabs, but its in­vestors are dis­ap­pointed with the smaller div­i­dends this year. There was a col­lec­tive sigh of dis­ap­point­ment: prof­its slid, costs were ris­ing, and the East Coast flag­ship was fal­ter­ing. But look­ing be­yond the restau­rant group’s Sin­ga­pore op­er­a­tions, like in China where out­lets were post­ing brisk sales, an­a­lysts found cause for op­ti­mism. “The story seems to be the same with Sin­ga­pore re­port­ing weak­ness in the bak kut teh and hot­pot seg­ments, whilst busi­ness at the East Coast

Park flag­ship seems to be slow. China con­tin­ues to be the bright spot for the group with the three out­lets in Shang­hai do­ing well,” said Nicholas Leow, an­a­lyst at UOB, Kay­hian.

He reck­oned weak­ness in key

Sin­ga­pore seg­ments stemmed from in­creased com­pe­ti­tion. Mean­while, chan­nel checks in­di­cate the East Coast Park flag­ship is suf­fer­ing from crowd can­ni­bal­i­sa­tion af­ter the re­de­vel­oped Marine Cove area opened last year, al­though plans to up­grade cer­tain sites as part of a de­con­ges­tion drive could bring back lost foot traf­fic. Al­fie Yeo, an­a­lyst at DBS, warns of ris­ing costs, which in 3Q17 were higher than ex­pected and led to slim­mer op­er­at­ing mar­gins. If not reined in, higher op­er­at­ing costs can stymie Jumbo Group’s growth.

“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,” said Yeo. “Apart from op­er­a­tional risks, we see fail­ure to de­liver growth in China as a key risk to our earn­ings growth pro­jec­tion. Sin­ga­pore’s busi­ness is sta­ble whilst the bulk of the growth is driven by China.”

The com­pany’s for­tunes in the com­ing years will likely de­pend on its abil­ity to quickly grow its over­seas China busi­ness and fine-tune its culi­nary ap­proach to suit re­gional tastes, said Gre­gory Yap, an­a­lyst at May­bank Kim Eng.

“As in the case of Raf­fles City Shang­hai, Jumbo may have to test and cal­i­brate its menu to suit lo­cal tastes in Bei­jing and Viet­nam be­fore it finds suc­cess. We note how­ever that Jumbo has es­tab­lished a good track record in Shang­hai and we are rea­son­ably con­fi­dent they can pull it off.”

He also fore­sees po­ten­tial up­side should the com­pany suc­cess­fully in­tro­duce new din­ing con­cepts or tweak un­der­per­form­ing busi­nesses such as JPOT, a hot­pot din­ing con­cept.

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