SINGAPORE (Jan 5): Maybank Kim Eng is initiating coverage of Jumbo Group, the seafood restaurant group well which now has three outlets in China.

“Jumbo deserves a premium to peers for its uniquely-Singapore brand and product and first-mover advantage in China. We initiate coverage with a buy ... and a TP of $0.58,” says analyst Gregory Yap in a Monday report.

Yap believes Jumbo’s expansion in China is just the beginning.

“The mainland Chinese have taken to chilli crabs in droves, and we think this expansion will provide years of double-digit growth to come.”

Yap is projecting accelerated earnings growth of 9%/11%/20% in FY16E-18E, driving China from a 10% market now to 32% of revenue by FY18E.

Maybank estimates Jumbo’s China outlets are capable of generating ROI of 32-86% with a relatively short payback period of 1-3 years which reduces risk.

“While Jumbo has demonstrated that it can successfully replicate its seafood-restaurant business in China, it has other dining concepts (eg hotpot, Teochew cuisines, bak kut teh) that can be exported overseas as well, not just in China but the rest of South-east Asia. Gross margins for all its brands run in the 40-60% range, and with scale, we see room for upside,” says Yap.

As at 11.23am, Jumbo is up 2.2% at 46 cents with 7.3 million shares traded.