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10 things I learned from the 2019 JUMBO Group AGM

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JUMBO Group Limited is an SGX-listed food & beverage (F&B) company. Founded in 1987, JUMBO has earned high praise for its chilli and black pepper crabs served at its namesake JUMBO Seafood restaurant. Besides JUMBO Seafood, the company currently owns or operates a number of other restaurant brands including Chui Huay Lim Teochew Cuisine, Ng Ah Sio Bak Kut Teh, JCafe, and Singapore Seafood Republic. At its closing price of S$0.40 on 22 February 2019, JUMBO Group has a market capitalization of S$259.9M.

As a
prominent brand frequently associated with local cuisine, Jumbo has been a
familiar name to most investors since its IPO at S$0.25 in November 2015. While
investors who participated in the IPO should be reasonably satisfied, earning
themselves a 60% return in just over three years, Jumbo’s stock price has been
halved since its January 2017 peak of S$0.79. The sheer magnitude of the price
collapse undoubtedly weighed on the minds of some shareholders at the AGM. But
personally, I was more interested in finding out whether JUMBO’s stock price
collapse was justified, and if it was, the reasons for the collapse.

In light of
that, here are 10 things I learned at Jumbo’s 2019 AGM: 

1. JUMBO revenues increased by 5.44% to
S$153.0M in fiscal 2018.
This latest figure extends Jumbo’s five-year streak of continually
rising revenues since the S$97.6M it earned in fiscal 2013. Group CEO Ang Kiam
Meng attributed this rise in revenues to the steady performance of restaurants
in Singapore as well as contributions from newly opened franchises in the
region.

Source: JUMBO Investor Presentation 2019

2. Despite the increase in revenues, JUMBO’s profits
declined 29.4% to S$10.6M in fiscal 2018 from S$15.0M the year prior.
This marks the second consecutive
year that JUMBO’s profits have declined. The company’s CFO, Tay Peng Huat,
attributed this decline in profits to the higher labour costs and increased
operating lease expenses. This was a result of their aggressive expansion into
regional markets such as China, Taiwan, Thailand and Vietnam. Tay
explained that the company has expanded its headcount at its headquarters,
creating new management-level positions such as a regional chief operating officer
exclusively in charge of overseas expansion. Coupled with the employment of
between 60 and 70 additional staff members for its new outlets, total employee
labour expense increased by S$5.7M — from S$41.8M to S$47.5M between fiscal
2017 and 2018. This sizeable increase in labour expense accounted for the
entirety of JUMBO’s profit decline in 2018.

3. Dividends per share declined to 1.2 cents in
fiscal 2018 from 1.7 cents in fiscal 2017.
This is the first time that JUMBO has reduced
its dividends since its IPO, after keeping dividends steady at 1.7 cents till
2017. While JUMBO does not commit to paying any certain amount of profits as
dividends, it has consistently paid approximately 70% of its profits as
dividends to shareholders. This year’s reduction in dividend can be wholly
attributed to the decline in profits as mentioned earlier.

4. JUMBO has been growing its presence in Singapore by opening new self-managed restaurants, but is expanding overseas using a franchise model. In 2018, JUMBO opened a total of seven new restaurants, two of which are located in Singapore. The two new outlets are respectively, a JUMBO Seafood outlet opened at ION Orchard which has been performing exceeding well according to the CEO, and a Tsui Wah cha chaan teng outlet — the result of a joint venture with the Hong Kong-based owners of the Tsui Wah brand. The remaining five outlets consist of four JUMBO seafood outlets opened in Xi’an, Fuzhou, Taichung, and Bangkok, and one Ng Ah Sio Bak Kut Teh outlet in Taipei. All five overseas outlets are opened as part as franchise agreements with partners. While no specifics were given on the exact performance of each outlet, Ang mentioned that the Ng Ah Sio outlet opened in Taipei was very well-received by locals, and that there are plans to continue expanding brand presence in the area.

5. JUMBO will continue on its aggressive expansion plans in 2019, focusing on three main avenues of growth: organic growth, mergers & acquisitions, and developing infrastructure & capabilities. As part of his prepared comments, Ang went into further detail about what each of these entailed. In terms of organic growth, the company plans to open new outlets in both Singapore and the region as it sees fit, but besides this, it also plans to engage in partnerships to bring popular overseas brands to Singapore. JUMBO’s joint venture with Tsui Wah in 2018 was a direct reflection of this strategy. On M&A deals, Ang did not go into any specifics, merely stating that they will actively look for opportunities. While the last growth avenue — developing infrastructure and capabilities — may not be a direct growth driver, increasing the efficiency of operations ultimately raises the company’s margins. As part of this strategy, JUMBO is currently looking at procuring a property of their own to house both their central kitchen and corporate headquarters in the same building.

6. A shareholder expressed concern at the sizeable decline in profits and asked the management team how they are planning to stem the decline. In response to this, Mr. Tay emphasised that the company created new management-level positions in 2018 for the expertise to expand overseas effectively, and that headcount at their headquarters would not be growing going forward. Coupling this with tight budget controls, he expects that margin pressure will ease in the coming year. However, their plan to continue aggressively expanding will mean that it may take between two and three fiscal years for profit margins to stabilise.

7. Another shareholder surfaced the fact that
restaurants usually see a sharp drop in takings after its first year of
operations as novelty wears off, and asked how management is planning to sustain
interest and grow beyond the novelty factor.
Ang noted the trend cited is a normal
occurrence in the restaurant business, and that he has observed this phenomenon
in many of JUMBO’s franchised restaurants in Taiwan, Vietnam, Thailand and
China. According to him, adjusting marketing strategies and recipes according
to local habits is of paramount importance. An example he cited was JUMBO’s
outlet in Xi’an, China (opened May 2018), which saw a larger than normal
decline in sales in the months following opening. After a study of consumer
tastes in the region, they concluded that their signature chilli crab was too
sweet for the liking of many locals. While the company did not alter the recipe
much to maintain the integrity of the dish, they switched to promoting other
savoury dishes like the black pepper crab.

8. A shareholder asked management whether JUMBO’s in-house R&D kitchen has been successful in creating new customer favourites. Ang responded by explaining that while diners are always looking for new dishes to try, many of these customers ultimately gravitate back towards the same few signature dishes. However, he stressed that this does not mean that the company should cease innovation. He cited the new chilli crab puffs, which are currently being tested at its ION Orchard outlet. The dish was created with the intention of eliminating the hassle of peeling crab shells, allowing customers to enjoy chilli crab in the day despite their tight lunch schedules. This dish has been well-received by customers.

9. A shareholder asked if management has
considered encouraging takeaways by collaborating with food delivery companies
or possibly developing a mobile application to increase ease of ordering.
Ang said the company already has
existing agreements with food delivery companies such as Deliveroo and Foodpanda.
Additionally, JUMBO’s restaurants already offer call-in and pre-order services
for customers wishing to take away. However, high-value items are very rarely
ordered for takeaway, with takeaway accounting for just 5-10% of sales at most
outlets. Hence, he currently does not see a need for a separate mobile
application, but indicated that the company will consider creating such an
application if there is heightened demand for the service.

10. Another shareholder expressed concern over the increased incidence of food poisoning cases in Singapore, and queried management on the measures they have in place to prevent such cases at JUMBO restaurants and franchises. Ang stressed that food safety is constantly the company’s top priority, which is attested to by the fact that JUMBO is one of the few F&B companies with a quality assurance department. In addition, all of their outlets have achieved the sought-after HACCP certification, with their central kitchen successfully clinching the substantially more stringent ISO 22000 certification. While Ang acknowledged that the company has to rely on the integrity of their overseas franchisees on food safety, he assured investors that the company has a very stringent process of selecting franchisees. Besides this, JUMBO also carries out audits and surprise spot checks quarterly to ensure that its franchisees do not deviate from standard operating procedures.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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