Will Jumbo’s focus on bottom-line growth pay off in FY17?

JVs, franchise development are crucial.

The future is bright for Jumbo Group (Jumbo), as analysts note that Jumbo’s focus on bottom-line growth—as opposed to chasing revenue growth—bodes well for the business.

According to a report by DBS, joint ventures and franchise development are expected to take shape and boost earnings marginally from end-FY17 in at least one or more targeted areas.

“We showcased Jumbo to our clients in Hong Kong on a non-deal roadshow (NDR) recently and appended more details and insights into the stock’s outlook and earnings traction. Key areas of interest which were addressed centred on the IPO, partnership with Breadtalk in China, and growth and operations in China,” DBS asserts.

“In particular, there were concerns that some restaurant chains have over-expanded in China, only to scale down ultimately. Management recognises this pitfall and is committed to running each and every restaurant in China profitably as opposed to rapidly increasing outlets,” it adds.

Overall, Jumbo remains a top contender with its rapid growth in China, close to 30% ROE in end-FY16, relatively higher margin than peers, cash generative business, as well as robust net cash balance.