Is Jumbo’s speedy growth about to come to a screeching halt?

Boosting start-up situation, economies of scale is key.

An expansion spree remains on the cards for Jumbo Group (Jumbo), as analysts see new store openings in China and Singapore driving the business’ growth.

According to a report by DBS, Jumbo is poised to expand its Riverside Jumbo Seafood outlet, as well as break ground in new locations in central area for Jumbo Seafood and Bak Kut Teh outlets.

In China, the business has plans to roll out more outlets in Shanghai through Jumbo Seafood and Bak Kut Teh sites.

Expansion plans also include franchise opportunities, which DBS anticipates will boost growth if franchise arrangements are secured. Jumbo is also likely to enjoy longer-term growth opportunities from mergers and acquisitions with other food and beverage foodservice chains regionally.

“We project earnings growth CAGR of >25% on the back of more store openings. Revenue increase of 16% CAGR from FY15-18F will be contributed by both new and existing stores. We project operating margins to improve on better economies of scale and improving start-up situation in China from FY15-18F,” states DBS.

Meanwhile, DBS notes that Jumbo has ROE close to 30%, and has relatively higher margin than peers. It also generates decent cash flows, and is in net cash.

DBS further asserts that more robust growth is on the horizon for Jumbo if it locks down a master franchisee for its China brands outside Shanghai, and more so if it succeeds in China.