12 Jan 2018

The Business Times

By NISHA RAMCHANDANI

JUMBO, it seems, is ready to kick its overseas expansion into high gear in the next few years.

While its first shot in 1995 at cracking an overseas market with an outlet in Indonesia failed, its second more calculated attempt nearly 20 years later in China proved more successful.

And now, the restaurant chain has sets its sights on aggressively ramping up regional expansion in the coming four to five years.

Having built a presence in key cities such as Beijing and Shanghai, it is considering Shenzhen and Xi'an as potential locations for new Jumbo Seafood outlets, while it plans to grow in other Chinese cities via joint ventures and/or franchises. It also sees room for at least one more new outlet in both Shanghai and Beijing in the coming years.

The restaurant group presently has 15 F&B outlets in Singapore and five F&B outlets in China under restaurant brands such as Jumbo Seafood and Ng Ah Sio Bak Kut Teh. In addition, it has one joint venture restaurant in Japan, and a franchised outlet in both Taipei and Ho Chi Minh. It also manages Singapore Seafood Republic at Sentosa.

China is fast becoming an important market for the group, accounting for 18 per cent of its revenue in FY17, up from just 6 per cent in FY14. Some analysts expect that China will increasingly become a key revenue generator for Jumbo - contributing potentially over 30 per cent of total revenue by FY2020 - as it sets up more outlets, JVs and franchises. Singapore may dish up the lion's share of revenue at 82 per cent, but China appears to be the key growth engine. At the same time, the seafood group is turning its focus to establishing new franchises over 2018-2022 as it seeks to scale up its presence across Asia.

Aside from China, markets that have been singled out for potential franchises in that timeframe include Thailand, Indonesia, Vietnam, Hong Kong, Macau, Taiwan and Korea. In particular, it is eyeing six to eight franchised outlets in Taiwan - it currently has one - and four to six in Indonesia, where it has none. Here at home, the group is aiming to open a new Jumbo Seafood outlet and a Teochew Cuisine outlet in the coming years.

There is also room to expand some of its other brands beyond Singapore's shores too. The restaurant group, which serves up over 1.7 tonnes of its signature crabs daily, gets 78 per cent of its revenue from its Jumbo brand.

"Jumbo plans to accelerate the opening of new Jumbo seafood outlets via franchising from FY18 onwards, increasing from one new outlet a year to four new outlets a year," wrote Maybank Kim Eng analyst John Cheong in a report last week. "It expects its franchise business to contribute more than 20 per cent of earnings, from zero currently, in the next three to five years."

Expanding via franchises and joint ventures also reduces upfront costs and minimises risk since the restaurant group can tie up with value-adding partners, reckons Mr Cheong, who has a target price of S$0.70 for the stock. The counter closed at S$0.59 on Thursday, down one cent.

The Catalist-listed group is already leveraging on experienced partners for some of its overseas ventures, such as BreadTalk in Shanghai and retail group Beijing Hualian, which operates the mall where its Beijing outlet is situated.

On the other hand, some other analysts warn that franchises and new stores could add cost and margin pressures in the near term. DBS Group Research analysts Alfie Yeo and Andy Sim, who have a target price of S$0.61, said: "Near term, we expect to see operating margins and earnings growth dampened by higher operating expenses."

In fact, new outlets in Beijing, Vietnam and Taiwan in the last financial year have already contributed to higher operating expenses. Net profit fell nearly 7 per cent to S$14.47 million in FY17 even as topline grew by about 6 per cent to S$145.1 million.

But while there could be some headwinds in the short-term from its expansion strategy, it is laying the groundwork for future growth, which could pay off in the long-term.

Source: The Business Times © Singapore Press Holdings Limited. Reproduced with permission