Jumbo

Jumbo: Maybank-KE initiates coverage on Jumbo with a Buy rating and TP of $0.58.

Jumbo’s highly-profitable seafood restaurants and signature crab dishes are much loved in Singapore, and now, being successfully exported to China where it has three outlets.

With its far bigger market potential and high ROI, there is room to add one new outlet in China a year as new outlets fully recoup investments in just 1-3 years.

Jumbo’s expansion in China is just beginning. The mainland Chinese have taken to chilli crabs in droves, and Maybank-KE thinks this expansion will provide years of double-digit growth to come.

Maybank-KE projects accelerating earnings growth of 9%/11%/20% in FY16E-18E, driving China from a 10% market now to 32% of revenue by FY18E. The house estimates that China outlets are capable of generating ROI of 32-86% with relatively short payback period of 1-3 years which reduces risk.

Jumbo has demonstrated that it can successfully replicate its seafood restaurant business in China. But it has other dining concepts (eg hotpot, Teochew cuisine, bak kut teh) that can be exported overseas as well, not just in China but the rest of South-east Asia. Gross margins for all its brands run in the 40-60% range, and with scale, Maybank-KE sees room for upside.

Maybank-KE opines that Jumbo deserves a premium to peers for its uniquely-Singapore brand and product and firstmover advantage in China. Maybank-KE’s TP of $0.58 implies a ~40% upside, and values Jumbo at 25x/22x/19x FY16e/17e/18e P/E.

Meanwhile, Market Insight favours Jumbo’s growth profile, and includes the stock in our growth portfolio with an entry price of $0.445