Thursday, 1 February 2018

6 Things I Learned from Jumbo Group AGM

*Disclaimer: I own Jumbo shares. This is not a buy or sell call.

The next company in my AGM series is Jumbo Group - the restaurant chain synonymous with chili crab.

My favourite is still Black Pepper Crab. But Chili Crab is not bad too.. What about you?
 As usual, AGM started with CEO Mr Ang Kiam Meng giving a presentation on business overview, expansion developments and upcoming plans, followed by CFO presenting on company's figures. Presentation slides can be found here.

AGM Held in Grand Ballroom of Chui Huay Lim Club. 

From Left: CFO, CEO Mr Ang, Chairman and Company Secretary conducting AGM
China Holds the Key to Jumbo's Future Success
The group has had great success with their expansion in China since 2013, opening 5 restaurants in 4 years. While there are franchise deals in Taiwan and Vietnam, China will be the key area of focus - so crucial that management formed one expansion team solely for China, while another team looks into the other markets.

It is not difficult to see why. Jumbo has tasted success with its expansion in Shanghai and Beijing thus far and they are ready to replicate the success model in other cities. China is vast and many of their cities are a worthwhile market on its own with population few times larger than Singapore's.

So, instead of spreading wide, management has chosen to stay targeted. Shanghai, Beijing, Guangzhou and Shenzhen - the 4 first-tier cities -, has been identified as focus areas given their size and consumers' spending power. So we will see many outlets clustered around few key cities, to reap economies of scale and improve operation efficiency.

Mr Ang also shared that they are on track for China's expansion plans as final phase discussions are underway for 3 more outlets to open by end of 2018.

As for other cities, the group will consider if the market shows good potential and there are strong local franchisers. If prospect is bright, management will also consider Joint Venture (JV) to operate their outlets.

Other Market Expansion Remains On Track
Taiwan's first franchise outlet is performing well, attaining positive Net Profit After Tax in second month of operations. There is also potential to franchise Ng Ah Siok Bak Kut Teh in Taiwan.

Jumbo is also working towards opening their first outlet in Thailand by year-end.

As for Hong Kong, management is having some issues with the Chinese name of restaurant '珍宝‘, as the name has already been used.

Unique Branding in China
Jumbo is synonymous with Chili Crab. The group is staying true to this unique identity overseas. In China, they have positioned themselves as, I quote Mr Ang, 'Big Crab Specialist' that sells Sri Lanka Mud Crab, Alaskan King Crab etc, distinct from the small hairy crab favoured by Shanghai locals. Mr Ang shared that someone asked why not consider selling hairy crab during season in Shanghai to cater to locals' taste. His response was no as the group should preserve its distinct branding.

However, consumer taste can be fickle and the Chinese are enterprising. Local versions of Chili Crab conjured up by local copycats have appeared.

Management shared that so far these have not impacted its results. The group is aware of competition and would continue leveraging its brand as a premium Singapore seafood restaurant selling big crabs to further its growth.

Consistency of Crab Supply Quality A Key Risk
Management shared that quality and quantity of crab supply is affected by its living environment. Global warming and other climate issue such as El Nino does not help too. While Jumbo has good relationships with its crab suppliers that provide sufficient quantity, management is keeping a close watch on this front.

One investor asked if Jumbo considered expanding upstream to acquire crab farms to secure its own supplies. Mr Ang answered that this is certainly an option, but see no immediate need for such a move at this moment as their crab supply is safe.

Jpot and Ng Ah Siok Face Stiff Competition
Not all is rosy with Jumbo's F&B brands in particular JPot and Ng Ah Sio. According to Management, Singapore has witnessed a 1.5 times increase in number of Bak Kut Teh outlets among the top 5 brands in recent years  (think Old Street BKT, Song Fa BKT etc.).  As a result, some of Ng Ah Siok outlets are losing money. Management shared it could be a location issue and they are looking at re-locating these outlets to non-central areas for cheaper rent.

Similarly for JPot - its facing competition from Imperial Treasure, Paradise, Hai Di Lao etc that offers premium a-la-carte hotpot. The JPot outlet at Parkway Parade has been closed due to loss.

Management is now reviewing its product offering, to scale down the non-earning brands so as to maintain profitability.

Other Growth Areas
The Group has identified Catering and Events as a growth area. There is scope for expansion in the local catering market for consumers and corporate events. However, Jumbo has resource constraints, basically insufficient manpower for the catering business, which has to shut down completely during the CNY period when seafood restaurants face overwhelming sales. So this is an area that can be ramped up moving forward.

My Take
CEO Mr Ang seems to know the industry well, and articulated clear strategy for company growth plans and solutions to address key issues. He repeatedly stressed that profitability will not be compromised at the expense of corporate expansion drive, and the group is being very selective about local franchisee. They want to work with committed and competent partner to ensure the success of business.

Jumbo is a growth stock no doubt. It is in my portfolio for growth purpose - to boost investment returns through big price rise.

But I am also aware of the pitfalls of growth stocks - growth not materialising and falling short of expectation, resulting in 'double whammy of earnings disappointment'. Hence the proper way to deal with this is to truly understand the company's business, closely monitor its performance, and be prepared for larger price swing which is commonly associated with high growth companies.

This is my high conviction growth counter this year. And I am looking to add more at lower price.

On a lighter note, towards the end of the Q&A session, an investor asked if Mr Ron Sim, founder of Osim who is a Non-Executive Director, would sponsor some Osim U Divine massage chairs in Jumbo outlets, to match up to the service standards of Hai Di Lao Hotpot. Fortunately Chairman came to Mr Sim's rescue by saying that he would consider and personally persuade Mr Sim to do so.

I personally think its not a bad idea. Worth exploring. : )



*Attending company AGMs and summarising key corporate insights is part of my work as a remisier. My clients have first hand info, and have been updated on this as my value-add service to them. 

Should you wish to have me as your remisier for a more profitable investment experience, please drop me an email or fill up the contact form on the right.

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