Jumbo Group’s China growth strategy
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.