The Motley Fool

Why Jumbo Group Shares Could Spice Up Your Portfolio

Jumbo Group Ltd (SGX: 42R), also known as Jumbo, is one of the leading food and beverage establishments in Singapore with a chain of different restaurants. Best known for its signature chilli crab from its Jumbo Seafood restaurant (which is instantly recognisable for many residents in Singapore), the group also has other brands in its portfolio such as JPOT, Chui Huay Lim Teochew Cuisine, Ng Ah Sio Bak Kut Teh, and J Cafe. The group operates in Singapore, Thailand, Vietnam, Japan, Taiwan, and China currently.

Although the group’s share price has tumbled from S$0.57 a year ago to the current S$0.40 (a 26.3% decline), this can be attributed to growing pains as the group works to expand its regional reach by opening more restaurants. Here are some key reasons why I believe Jumbo’s shares could spice up your portfolio.

Opens second Ng Ah Sio outlet in Taiwan

In late April, Jumbo announced that its second Ng Ah Sio Bak Kut Teh outlet has opened in Taiwan. The outlet is located within Zhongshan district and is near Taipei Main Station (which provides exceptional accessibility). Jumbo had signed a franchise agreement with Ho Sing Food Co Ltd and opened its maiden outlet in Taiwan in July 2018.

The outlet occupies a total floor space of 2,500 square feet, with an indoor seating capacity of around 90 seats. Jumbo plans to work with Ho Sing to open two additional outlets in Taiwan over the next 12 months.

Franchise agreement for Jumbo Seafood in South Korea

In mid-April, Jumbo announced that it had incorporated a joint venture (JV) company in South Korea named JD F&B Inc with a paid-up capital of S$1.14 million. The Jumbo Group of Restaurants Pte Ltd, a wholly-owned subsidiary, has entered into a franchise agreement (as franchisor) with the JV company to establish a Jumbo Seafood restaurant in Seoul’s fashionable district Gangnam.

The franchise agreement is for a term of five years and may be renewed for a further five years subject to certain terms and conditions determined by the Franchisor. The opening of the very first Jumbo Seafood restaurant in South Korea is expected to be in the third quarter of 2019.

Expansion of Jumbo footprint in Singapore

Meanwhile, Jumbo is not standing still in its home country of Singapore. In April, the group announced the opening of Jumbo Seafood’s latest local outlet at JEWEL Changi Airport, following close on the heels of the opening at ION Orchard. This is Jumbo Seafood’s sixth outlet in Singapore and the group now operates 17 Jumbo Seafood outlets in nine cities across Asia.

In addition, the group has also launched two new dining concepts offering Teochew cuisine – Zui Yu Xuan Teochew Cuisine and Chao Ting, both located in Far East Square. Together with Chui Huay Lim, the opening of these two new concepts brings the total Teochew concepts which Jumbo operates to three.

The Foolish takeaway

Jumbo continues to drive its expansion strategy by opening more outlets in different cities, as well as exploring new countries such as South Korea to penetrate. At the same time, the group is not afraid to explore new dining concepts in order to cater to the taste buds of Singaporeans. However, investors should note that new stores will take time to ramp up and show results, but Jumbo’s strategy could bear fruit in the next few years if the expansion pans out.

Based on last quarter’s annualised earnings per share of 1.6 Singapore cents, and with a trailing 12-month dividend of 1.2 Singapore cents per share (paid twice-yearly), Jumbo is trading at a forward price-earnings ratio of 25x and a historical dividend yield of 3.0%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in Jumbo Group Ltd.