Jollibee Foods Corporation - Credit Suisse
Transcript of Jollibee Foods Corporation - Credit Suisse
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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
06 December 2013
Asia Pacific/Philippines
Equity Research
Restaurants
Jollibee Foods Corporation
(JFC.PS / JFC PM) INITIATION
Great fast food comes at a price
■ Initiating coverage with OUTPERFORM and 20% total return potential
upside. Rather than drawing the obvious conclusion that Jollibee is
overvalued (history has proven this to be a questionable stance), our thesis
is that ~20% EPS growth, positive surprise potential, higher returns, 40%+
FCF growth and higher cash distributions to shareholders cannot be
underestimated. Jollibee is an immensely relevant consumer company
where 11% of the Philippine population visits one of the company’s outlets
every single week.
■ Three pillars to defining a superior consumer franchise. Empirical data
supports that consistent EPS growth, high and rising excess returns, and
financial prowess are the key criteria that determine whether consumer
companies can trade at PEG ratios of 2.0-2.5x. Jollibee has among the best
earnings growth track records, the highest and fastest rising excess returns
and one of the best balance sheets and FCF generation profiles of NJA
consumer companies.
■ Home is the foundation, abroad is the catalyst. The Philippines is our most
preferred consumer market for 2014 because consumption growth can sustain
at 1.5-2.0x higher than historical trends. We believe 80% of Jollibee’s sales
growth will come from the Philippines over the next three years. By deploying
excess capital behind ROIC-accretive expansion both home and abroad, the
value of their existing franchise should rise by 16% annually. In addition, we
believe there is >50% probability that the company enters Indonesia, which
would be incremental to earnings and is not factored into today’s share price.
■ Upside driven by earnings growth. We have a high degree of confidence
in our above-consensus EPS forecasts and that this will drive share price
gains from here. Our P205 target price assumes flat multiples. Downside
risks include macroeconomic, forex, acquisition and natural disaster risks.
Share price performance
80
100
120
140
160
80
130
180
Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
PHILIPPINE SE COMPOSITE INDEX which closed at 6030.95
on 05/12/13
On 05/12/13 the spot exchange rate was P43.86/US$1
Performance Over 1M 3M 12M Absolute (%) -2.0 5.8 64.2 Relative (%) 5.5 4.8 58.1
Financial and valuation metrics
Year 12/12A 12/13E 12/14E 12/15E Revenue (P mn) 71,059.0 80,688.9 91,710.7 104,100.4 EBITDA (P mn) 7,052.1 8,512.7 9,943.8 11,673.9 EBIT (P mn) 4,346.5 5,505.6 6,595.1 8,234.7 Net profit (P mn) 3,728.2 4,601.0 5,439.0 6,723.5 EPS (CS adj.) (P) 3.51 4.34 5.13 6.34 Change from previous EPS (%) n.a. Consensus EPS (P) n.a. 4.31 5.03 5.90 EPS growth (%) 13.5 23.4 18.2 23.6 P/E (x) 49.5 40.1 33.9 27.5 Dividend yield (%) 1.3 1.4 1.8 2.3 EV/EBITDA (x) 25.5 21.1 18.0 15.0 P/B (x) 9.8 8.8 8.0 7.2 ROE (%) 20.5 23.2 24.8 27.6 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates.
Rating OUTPERFORM* Price (05 Dec 13, P) 174.00 Target price (P) 205.00¹ Upside/downside (%) 17.8 Mkt cap (P mn) 183,112 (US$ 4,175) Enterprise value (P mn) 179,459 Number of shares (mn) 1,052.37 Free float (%) 40.9 52-week price range 185.0 - 102.0 ADTO - 6M (US$ mn) 2.6
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Karim P. Salamatian, CFA
852 2101 7996
Rebecca Kwee
852 2101 7951
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 2
Focus charts Figure 1: JFC has exposure to strong domestic trends
and high-potential NJA markets 2013E system-wide sales breakdown by country and major format
Figure 2: Growth will primarily be driven by extracting
greater profitability from existing assets … 2013E-16E breakdown of EPS growth (% YoY)
Jollibee 49%
Chowking13%
Mang Inasal
9%
Other 10%
Yonghe King10%
Other 9%
Philippines 81%
China 13%
USA 3.5%
ASEAN & Middle East
2.5%
2013E system-wide sales P104bn
26%44% 34% 42%
7%
15% 11% 13%
67%41%
55%
45%
FY13E FY14E FY15E FY16E
SSSG Store growth EBITDA Margin Expansion
24%
18%
24%
18%
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 3: … as EBITDA per store is expected to rise JFC 2012-16E EBITDA/avg. store (P mn)
Figure 4: This in turn should extend the impressive streak
of consistent earnings growth … Quarterly EPS growth, % YoY
2.8
3.1
3.5
3.9 4.2
FY11 FY12 FY13E FY14E FY15E
2012-2016E CAGR: 11%
-30%
-10%
10%
30%
50%
70%
90%
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
Source: Company data, Credit Suisse estimates Source: Company data
Figure 5: … and push excess return expansion higher JFC 2012-15E ROIC and excess (ROIC- WACC) return
Figure 6: All while generating free cash flow and
maintaining strong balance sheet optionality JCF FCF per share and YoY growth (2012-16E)
14.8%
17.1%18.8%
21.3%
6.6%
8.9%
10.6%
13.1%
2012 2013E 2014E 2015E
ROIC Excess Return (ROIC-WACC)
3.99
2.733.32
7.60
8.63
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
FY12 FY13E FY14E FY15E FY16E
Free cash flow per share (PHP)
YoY% growth (RHS)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 3
Great fast food comes at a price Jollibee is the largest foodservice operator in NJA by market capitalisation and sales with
2,800 outlets (48% franchised) in ten different formats/concepts. Around 81% of system-
wide sales come from the Philippines while the balance from nine other markets including
China, Vietnam, US, Hong Kong, Singapore and the Middle East. Jollibee’s strength can
be defined by the fact that it is one of the most relevant consumer stories among NJA—
Jollibee serves 11% of the Philippine population every single week.
At first glance, it is easy to overlook Jollibee shares because of the valuation; however, we
believe doing so poses considerable Type II risk even at current levels. We do not
recommend underestimating Jollibee’s ability to deliver ~20% EPS growth, positive
surprises, rising returns and higher cash distributions to shareholders.
Defining Jollibee’s consumer franchise Strong consumer franchises that can sustain large premium valuations have three things
in common: (1) Consistent and visible earnings growth over long periods of time. Over the
last 48 quarters, Jollibee has delivered positive YoY EPS growth 40 times at an average
rate of 15% YoY. Seventeen times in the past 21 years Jollibee has posted positive
earnings growth. Empirically, when large consumer companies generate consistent growth
over five years or more, PEG ratios average 2.5x. (2) High and rising excess returns over
cost of capital. There is high correlation between valuations (EV/EBITDA and P/E) and
excess returns (ROIC less WACC). Jollibee generates among the highest excess returns
of its domestic consumer and NJA foodservice peers. On top of this, Jollibee is expected
to increase its excess returns at a much faster rate over the next three years. (3) Financial
prowess—cash to return to shareholders and/or pursue new growth. Jollibee has
maintained a net cash position despite increasing its total assets and store count by 41%
and 60%, respectively, since 2009. Its FCF is expected to grow 2x faster than earnings
over the next three years.
Maximising returns from existing formats With a total invested capital base of US$650 mn, the strongest driver of growth will come
from existing assets, in our view. Over the next four years, we believe the company can
harvest its existing asset base better by increasing productivity at the Jollibee format in
both the Philippines and international markets, building on the recent momentum in China
and turning Vietnam profitable. We conservatively expect EBITDA/store to increase 11%
annually. This is in addition to 5% annual growth in existing formats.
Capitalising on the best growth markets The Philippines is our most preferred consumer market heading into 2014 because Private
Consumption Expenditure (PCE) is expected to accelerate 90 bp from an already high
base in 2013 and average nearly 2x the historical rate in 2014 and 2015. Furthermore, it
has the third lowest penetration of QSRs (Quick Service Restaurants) in NJA after
Indonesia and India. We believe 80% of Jollibee’s growth over the next four years will
come from the domestic market. International sales growth should be fuelled by China and
Vietnam where penetration and per capita spending at QSR are attractively low. Indonesia
is the most interesting market that Jollibee does not operate in, and we believe the
company could positively surprise the market by entering this country in the next two
years.
Don’t be deterred by valuation Our key point on valuation is to not let it be immediately off-putting because consumer
franchises such as Jollibee often sustain levels this high for considerably long times or at
least until the earnings growth streak comes to an end. Jollibee is on a five-year EPS growth
streak that is not expected to end anytime soon. Therefore, our TP of P205 implies flat
multiples. If growth accelerates from stronger trends in the Philippines and/or China, plus a
sensible acquisition in Indonesia, multiple expansion would not be completely unfathomable.
Downside risks include macroeconomic, forex, acquisition and natural disaster risks.
Jollibee is the largest
foodservice operator in NJA
with 2,800 stores across ten
markets
Don’t underestimate how
the fundamentals can
sustain the valuation
Jollibee has delivered EPS
growth in 40 of the last 48
quarters, has high and rising
excess returns and a very
strong balance sheet
Growth will primarily come
from harvesting existing
assets
Exposed to the most
attractive markets with
possibility of entering
Indonesia in 2014 or 2015
TP assumes multiples will
be sustained by strong
fundamental performance
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 4
Jollibee Foods Corporation JFC.PS / JFC PM Price (05 Dec 13): P174.00, Rating: OUTPERFORM, Target Price: P205.00, Analyst: Karim Salamatian
Target price scenario
Scenario TP %Up/Dwn Assumptions
Upside 255.00 46.55 20% sales growth p.a., 5% multiple expansion
Central case 205.00 17.82 13% sales growth p.a., flat multiples
Downside 145.00 (16.67) 5% sales growth p.a., 5% multiple contraction
Key earnings drivers 12/12A 12/13E 12/14E 12/15E
Number of stores 2,628 2,778 2,931 3,084 System-wide sales growth 12.3 13.1 13.6 13.3 Opex as % of sales 11.7 11.5 11.5 11.4 — — — — — — — —
Income statement (P mn) 12/12A 12/13E 12/14E 12/15E
Sales revenue 71,059 80,689 91,711 104,100 Cost of goods sold 58,434 65,901 74,563 83,982 SG&A — — — — Other operating exp./(inc.) 5,573 6,276 7,204 8,445 EBITDA 7,052 8,513 9,944 11,674 Depreciation and amortisation 2,706 3,007 3,349 3,439 EBIT 4,346 5,506 6,595 8,235 Net interest expense/(inc.) (64.1) (128.8) (107.5) (156.5) Non-operating inc./(exp.) 503.5 500.0 500.0 500.0 Associates/JV (51.0) (50.0) (10.0) — Recurring PBT 4,863 6,084 7,193 8,891 Exceptionals/extraordinaries — — — — Taxes 1,150 1,460 1,726 2,134 Profit after tax 3,713 4,624 5,466 6,757 Other after tax income — — — — Minority interests (15.1) 23.1 27.3 33.8 Preferred dividends — — — — Reported net profit 3,728 4,601 5,439 6,724 Analyst adjustments — — — — Net profit (Credit Suisse) 3,728 4,601 5,439 6,724
Cash flow (P mn) 12/12A 12/13E 12/14E 12/15E
EBIT 4,346 5,506 6,595 8,235 Net interest (35.4) 128.8 107.5 156.5 Tax paid (1,363) (1,460) (1,726) (2,134) Working capital 1,292 536 478 775 Other cash and non-cash items 3,351 3,057 3,359 3,439 Operating cash flow 7,591 7,767 8,813 10,472 Capex (3,756) (5,376) (5,848) (3,048) Free cash flow to the firm 3,835 2,391 2,965 7,424 Disposals of fixed assets — — — — Acquisitions (127.6) — — — Divestments 41.8 — — — Associate investments — — — — Other investment/(outflows) (42.0) — — — Investing cash flow (3,884) (5,376) (5,848) (3,048) Equity raised — — — — Dividends paid (2,274) (2,610) (3,221) (4,079) Net borrowings 72 (232) (235) (3,844) Other financing cash flow 33.4 (225.1) (246.4) (197.5) Financing cash flow (2,169) (3,067) (3,702) (8,121) Total cash flow 1,538 (675) (736) (697) Adjustments 8.0 — — — Net change in cash 1,546 (675) (736) (697)
Balance sheet (P mn) 12/12A 12/13E 12/14E 12/15E
Cash and cash equivalents 8,849 8,849 8,849 8,849 Current receivables 2,750 2,690 2,620 2,603 Inventories 2,630 2,929 3,242 3,574 Other current assets 1,395 1,395 1,395 1,395 Current assets 15,623 15,862 16,105 16,419 Property, plant & equip. 11,059 13,428 15,928 15,536 Investments 3,894 3,844 3,834 3,834 Intangibles 8,705 8,705 8,705 8,705 Other non-current assets 2,709 2,709 2,709 2,709 Total assets 41,991 44,548 47,281 47,204 Accounts payable 4,717 5,492 6,214 7,303 Short-term debt 4,573 4,341 4,106 262 Current provisions — — — — Other current liabilities 7,281 7,281 7,281 7,281 Current liabilities 16,571 17,114 17,601 14,846 Long-term debt 854.6 854.6 854.6 854.6 Non-current provisions — — — — Other non-current liab. 2,672 2,672 2,672 2,672 Total liabilities 20,097 20,640 21,128 18,372 Shareholders' equity 18,872 20,864 23,082 25,726 Minority interests 733.1 756.2 783.6 817.3 Total liabilities and equity 41,991 44,548 47,281 47,204
Per share data 12/12A 12/13E 12/14E 12/15E
Shares (wtd avg.) (mn) 1,061 1,061 1,061 1,061 EPS (Credit Suisse) (P) 3.51 4.34 5.13 6.34 DPS (P) 2.18 2.50 3.09 3.92 BVPS (P) 17.8 19.7 21.8 24.3 Operating CFPS (P) 7.2 7.3 8.3 9.9
Key ratios and valuation
12/12A 12/13E 12/14E 12/15E
Growth (%) Sales revenue 13.6 13.6 13.7 13.5 EBIT 11.4 26.7 19.8 24.9 Net profit 15.4 23.4 18.2 23.6 EPS 13.5 23.4 18.2 23.6 Margins (%) EBITDA 9.9 10.6 10.8 11.2 EBIT 6.12 6.82 7.19 7.91 Pre-tax profit 6.84 7.54 7.84 8.54 Net profit 5.25 5.70 5.93 6.46 Valuation metrics (x) P/E 49.5 40.1 33.9 27.5 P/B 9.8 8.8 8.0 7.2 Dividend yield (%) 1.25 1.44 1.78 2.25 P/CF 24.3 23.8 20.9 17.6 EV/sales 2.53 2.22 1.95 1.68 EV/EBITDA 25.5 21.1 18.0 15.0 EV/EBIT 41.3 32.6 27.2 21.3 ROE analysis (%) ROE 20.5 23.2 24.8 27.6 ROIC 17.6 21.6 23.6 28.9 Asset turnover (x) 1.69 1.81 1.94 2.21 Interest burden (x) 1.12 1.11 1.09 1.08 Tax burden (x) 0.76 0.76 0.76 0.76 Financial leverage (x) 1.92 1.86 1.81 1.64 Credit ratios Net debt/equity (%) (15.6) (15.3) (14.9) (26.8) Net debt/EBITDA (x) (0.49) (0.43) (0.39) (0.66) Interest cover (x) (67.8) (42.7) (61.3) (52.6)
Source: Company data, Thomson Reuters, Credit Suisse estimates.
0
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10
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2006 2007 2008 2009 2010 2011
12MF P/E multiple
0.0
0.5
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12MF P/B multiple
Source: IBES
0
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3
Jo
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e F
oo
ds
Co
rpo
ratio
n
(JF
C.P
S / J
FC
PM
) 5
Figure 7: Jollibee vs global foodservice sector valuations
Market Avg
Absolute
Performance
Relative
Performance EPS growth P/E EV/EBITDA EBITDA margin DvD Yld ROE P/BV FCF Yld ROIC
NetDebt/
Equity
priced as of Dec 5 2013 Ticker Upside cap
daily
t/o (%) (%) (%) (x) (x) (%) (%) (%) (x) (%) (%) (%)
(%) (USDm) YTD 12m YTD 12m T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+1 T+2 T+1
Non-Japan Asia Foodservice
Jollibee Foods Corporation JFC.PS 18 4,175 2.6 71 58 67 54 23 18 24 40.1 33.9 27.5 14.2%* 13.9%* 10.6 10.8 1.4 22.1 8.8 1.3 17.1 (15.3)
Cafe De Coral 0341.HK n.a. 1,898 1.3 16 13 12 7 14 13 16 27.0 24.0 20.6 14.2 12.0 14.1 14.5 3.5 16.0 4.1 n.a. n.a. n.a.
Jubilant Foodworks JUBI.BO (32) 1,404 5.8 1 (1) (6) (9) 10 28 24 57.9 45.3 36.5 29.9 23.4 16.1 16.3 0.0 25.6 14.8 0.1 24.7 (5.8)
Ajisen 0538.HK 51 1,054 2.5 1 6 (3) (1) 83 22 18 28.6 23.3 19.8 13.5 10.8 15.2 16.8 1.2 8.9 2.5 5.1 8.3 (57.8)
Tsui Wah Holding 1314.HK 20 963 2.1 114 n/a 110 n/a 10 32 62 47.0 35.7 21.9 35.9 26.4 16.8 16.2 0.9 12.5 5.9 1.4 13.2 (88.3)
NJA Average 41 19 36 13 28 23 29 40.1 32.5 25.3 23.4 18.1 14.5 14.9 1.4 17.0 7.2 2.0 15.8 (41.8)
International Foodservice
McDonald's Corp MCD.N n.a. 95,234 119.2 9 7 (17) (19) 4 7 10 17.2 16.1 14.7 10.5 10.0 36.3 36.2 3.3 35.9 6.1 4.4 n.a. n.a.
Yum! Brands, Inc. YUM.N n.a. 33,694 48.1 14 14 (12) (12) (10) 24 17 26.0 21.0 18.0 14.1 12.0 20.2 20.9 1.8 60.4 15.3 3.7 n.a. n.a.
Chipotle Mexican CMG.N n.a. 16,033 27.2 74 90 48 63 20 24 23 49.5 40.0 32.6 21.5 17.4 19.8 20.8 0.0 27.1 10.7 1.6 n.a. n.a.
Dominos Pizza DPZ n.a. 3,828 44.7 58 64 32 38 21 15 15 28.2 24.5 21.4 15.3 13.8 19.1 19.7 1.2 (10.8) (3.0) 2.9 n.a. n.a.
The Wendy's Company WEN.OQ n.a. 3,345 8.5 82 80 56 53 48 17 19 34.0 29.1 24.4 11.3 10.8 14.6 17.9 1.8 4.0 1.7 1.9 n.a. n.a.
International Average 47 51 22 25 16 17 17 31.0 26.2 22.2 14.5 12.8 22.0 23.1 1.6 23.3 6.1 2.9 n.a. n.a.
Philippines Consumer
Alliance Global Group Inc AGI.PS 25 5,690 8.3 45 50 41 45 14 21 18 15.4 12.8 10.8 7.7 6.3 27.4 27.9 1.6 14.9 2.2 2.7 10.1 (7.9)
Universal Robina Corp. URC.PS 22 5,599 7.5 42 48 38 43 19 14 16 27.1 23.7 20.4 18.3 15.6 16.9 17.5 2.0 18.1 4.9 2.2 17.9 (15.5)
Puregold Price Club, Inc PGOLD.PS n.a. 2,624 3.6 26 28 22 23 27 26 16 29.4 23.3 20.0 15.9 12.6 8.5 8.9 0.6 13.6 3.7 n.a. 24.0 n.a.
Philippines Average 38 42 34 37 20 20 17 24.0 19.9 17.1 14.0 11.5 17.6 18.1 1.4 15.5 3.6 2.5 17.3 (11.7)
*comparable gross margin: adjusted COGS (only incl. cost of inventories) and excluding commisary sales to franchises
Source: Company data, IBES, Credit Suisse estimates for covered companies
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 6
Defining Jollibee’s consumer franchise At first glance, it is easy to overlook Jollibee shares because of the valuation; however, we
believe doing this poses considerable Type II risk even at current levels because
underestimating strong consumer franchises based solely on valuation often leads to high
opportunity costs.
The three most important characteristics of a strong consumer franchise are:
(1) Consistent and visible earnings growth over long periods of time;
(2) high and rising excess returns over cost of capital;
(3) Financial prowess – strong balance sheet with cash to return to shareholders and
purse new growth opportunities.
In the case of Jollibee, its superior consumer franchise in absolute terms and relative to
both the Philippines and NJA foodservice peers is what we believe will sustain the current
valuation multiple in coming years. As a result, we believe the risk of material multiple
contraction is low.
Our TP of P205 assumes valuation multiples remain constant over the next 12 months.
Best-in-class earnings growth consistency
For 12 straight years, Jollibee has delivered average quarterly YoY EBITDA, net income
and EPS growth of 12%, 16% and 15%, respectively. In only 8 of the past 48 quarters was
YoY EPS growth negative. Delivering positive earnings growth 83% of the time is
consistency that is difficult, if not impossible, to replicate in the NJA consumer space.
Quarterly EPS growth has been positive for nine consecutive quarters and has averaged
18% YoY. Consumer franchises that can deliver the type of earnings consistency that
Jollibee has can sustain PEG ratios of ~2x.
Figure 8: Jollibee’s earnings growth consistency is irreplaceable in NJA consumer
-80%
-60%
-40%
-20%
0%
20%
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60%
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100%
2Q
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EBITDA Growth YoY EPS Growth YoY
Source: Company data
Jollibee has posted more than two decades of consistent annual EPS growth. In the past
21 years, Jollibee has only reported YoY decline in EPS on four occasions (1997, 1999,
2001 and 2008).
Consistent EPS growth,
high and rising excess
returns and strong financial
position underpin premium
valuations of strong
consumer franchises
TP of P205 assumes flat
multiples
Jollibee has increased EPS
in 40 of the last 48
quarters…
… and in 17 of the last 21
years
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 7
EPS growth has been positive for four consecutive years and we expect this to expand to
eight years with 23% EPS growth in 2013 and then 20% CAGR over the next three years.
Annual EBITDA growth over the next three years is expected to be 16%. While forward
EPS growth should be lower than in 2013, it is materially ahead of historical EPS growth.
Historical precedents of the importance earnings growth consistency has on
valuation
To demonstrate how important strong consumer franchises that can deliver consistent
growth is for valuation, we combed the developed market universe for large-scale
consumer companies that delivered quarterly YoY EPS growth for at least five years and
found eight notable examples. Interestingly, during this period the average PEG ratio
these companies traded at was 2.4x.
Figure 9: Consumer franchises that deliver 5 years (or more) of consistent EPS growth command PEG ratios >2x
Company Avg. PEG Avg. PECurrent
2014E PE
Current PE Relative to
Overall Market
Nestle 3.3x 19.3x 17.8x 1.19x
Starbucks 2.7x 61.9x 30.0x 2.01x
McDonald's Corp 2.6x 20.8x 16.1x 1.08x
Wal-Mart Stores, Inc. 2.5x 28.2x 15.5x 1.04x
PepsiCo, Inc. 2.5x 24.2x 17.6x 1.18x
Procter & Gamble Co. 2.2x 25.2x 19.4x 1.31x
Yum! Brands, Inc. 2.1x 18.3x 21.0x 1.41x
ITC Ltd 1.4x 28.5x 28.8x 1.85x
Nestle India 4.2x 38.5x 33.8x 2.41x
Chipotle Mexican 1.8x 37.6x 40.0x 2.68x
Colgate-Palmolive India 1.1x 25.5x 33.3x 2.38x
Average 2.4x 29.8x 24.8x 1.69x
Jollibee Foods 3.7x 23.7x 33.9x 1.82x
Period of >5yr EPS Growth
2H08 and counting …
3Q2003 - 2Q2009
3Q1997 - 1Q2008
1Q1993 - 3Q1997
1Q1997 - 3Q2009
4Q1999 - 1Q2009
1Q1995 - 2Q2000, 2Q2001 - 1Q2006
3Q2001 - 4Q2012
1Q2009 and counting …
4Q2005 and counting …
1Q2003 - 3Q2011
2Q2006 and counting…
Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013
It is interesting to see from Figure 9 that the three companies still in the midst of a five-
year (or more) trend of consistent earnings growth trade at multiples today that are higher
than the historical average. For Jollibee, ITC Ltd (ITC.BO, Rs313.25, OUTPERFORM, TP
Rs385.00), Nestle India (NEST.BO, Rs5042.4, UNDERPERFORM, TP Rs5,050.00) and
Chipotle Mexican (CMG) one could argue that multiples will be maintained until such a
streak comes to an end. For Jollibee, we do not expect this to happen any time over the
next three years.
Superior excess return story
Simply put, consumer companies that can generate high excess returns (ROIC less
WACC) will command premium valuations (Figure 10). Between the 1st and 2
nd, and 2
nd
and 3rd
quartiles for excess returns of NJA consumer stocks, the valuation declines on
average by 25% and 24%, respectively. The relationship breaks when moving from the 3rd
to 4th quartile because the market is often pricing in recovery returns for companies that do
not cover their cost of capital and/or their earnings estimates are trending down; therefore,
multiples are disproportionately high.
For Jollibee, its excess return currently resides at the top of the 2nd
quartile at 890 bp, but
looking out three years, Jollibee is expected to have one of the highest improvements in
excess returns, so when looking at valuations based on three-year forward excess return
(Figure 11) the relationship holds firmly.
Forecast 21% EPS CAGR
over 2012–16E
Empirical data shows that
strong consumer franchises
can trade at >2x PEG when
earnings growth is
consistent over five years
JFC, ITC, NEST and CMG
are still in the midst of their
5yr+ run of earnings growth
High excess return
consumer companies are
rewarded by the market
Jollibee’s 3yr fwd excess
return delta is among the
highest of domestic and
regional peers
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 8
Figure 10: Excess returns are primary driver of valuations NJA consumer average; excess return = ROIC less WACC
Figure 11: 3-year out excess returns is equally compelling NJA consumer average; excess return = ROIC less WACC
23.3
x
18.7
x
16.0
x
18.0
x
16.3
x
11.5
x
9.8
x
10.3
x
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
12mf PE 12mf EV/EBITDA
-20%
+5%
+13%
-14%
-14%-29%
23.7
x
17.9
x
17.4
x
16.6
x16.7
x
10.9
x
10.2
x
10.1
x
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
12mf PE 12mf EV/EBITDA
-24%
-1%
-5%
-6%
-3%
-35%
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Now that it is evident that excess returns are a key driver of valuations for consumer
companies, it is important to see how Jollibee stacks up against its Philippines peers and
regional food service players.
Jollibee has the second highest excess returns behind Puregold Price Club, Inc
(PGOLD.PS), but its excess returns are expected to grow 4-5x faster than PGOLD’s over
the next three years; this justifies the P/E valuation premium. Excluding the dramatic ROIC
increase at Bloomberry due to its casino coming online in 2013, Jollibee’s excess returns
are expected to increase faster (647 bp vs 549 bp) than the Philippines consumer peer
group average. URC is also increasing at a fast rate, which is the key driver to its multiple
being sustained going forward.
Figure 12: ROIC and excess return profile of PH consumer companies
Symbol Company2012
ROIC
2015E
ROIC
2012
Excess
Return
2015E
Excess
Return
3yr
Excess
Return
Change
NFY PENFY
EV/EBITDA
PGOLD.PS Puregold Price Club, Inc 23.2% 24.7% 14.3% 15.8% 150bps 23.3x 23.3x
JFC.PS Jollibee Foods Corporation 14.8% 21.3% 6.6% 13.1% 647bps 33.9x 18.1x
URC.PS Universal Robina Corp. 13.9% 21.8% 3.6% 11.5% 789bps 23.7x 15.6x
AGI.PS Alliance Global Group Inc 9.3% 12.2% 0.9% 3.8% 291bps 12.8x 6.3x
BEL.PS Belle Corporation 1.3% 9.9% -10.0% -1.4% 866bps nmf nmf
BLOOM.PS Bloomberry Resorts Corporation -2.9% 20.6% -14.2% 9.3% 2,355bps 17.7x 12.3x
Average 9.9% 18.4% 0.2% 8.7% 850bps 22.3x 15.1x Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013
Relative to regional foodservice peers, Jollibee also stacks up very favourably in terms of
ROIC and excess return delta over the coming three years. Jollibee’s ROIC is the second
highest behind Jubilant Foodworks (JUBI.BO, Rs1321.5, UNDERPERFORM, TP
Rs895.00), but more importantly is heading in the right direction. Over the next three years,
we expect Jollibee to increase its excess returns by 647 bp versus a decline of 705 bp at
Jubilant. The latter is a function of increased competition and pressure on menu pricing as
a result. In 2015, we expect Jollibee to generate higher excess returns than that of Jubilant,
and this will be a key reason why we think multiple risk is much higher at the latter.
Relative to the peer group, Jollibee is more profitable, and the excess returns are rising at
a superior pace.
Jollibee’s excess returns are
expected to increase 4x
faster than PGOLD but
slightly lower than URC
Jollibee also stacks up very
favourably in terms of ROIC
and change in excess return
relative to regional
foodservice peers
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 9
Figure 13: ROIC and excess return profile of NJA foodservice operators
Symbol Company2012
ROIC
2015E
ROIC
2012
Excess
Return
2015
Excess
Return
3yr
Excess
Return
Change
NFY PENFY
EV/EBITDA
JUBI.BO Jubilant Foodworks 30.0% 23.0% 18.0% 11.0% -705bps 46.8x 24.1x
JFC.PS Jollibee Foods Corporation 14.8% 21.3% 6.6% 13.1% 647bps 33.9x 18.1x
1314.HK Tsui Wah Holding 11.4% 25.4% 3.5% 17.5% 1,400bps 35.7x 26.4x
CENT.BK Central Plaza Hotel PCL 8.3% 12.9% -0.1% 4.5% 453bps 23.6x 13.0x
MINT.BK Minor International PCL 7.7% 9.5% -1.1% 0.7% 177bps 21.5x 16.2x
0538.HK Ajisen 4.1% 10.6% -4.0% 2.5% 643bps 23.3x 10.8x
Average 12.7% 17.1% 3.8% 8.2% 449bps 30.8x 18.1x Note: CENTEL and MINT’s food businesses are 57% and 39% of revenues, respectively.
Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013
Financial prowess
Consumer companies are rewarded in their valuation for maintaining strong financial
stability and maintaining flexibility to capitalise on organic and/or acquisition-driven growth
opportunities.
For the past four years, Jollibee has operated with 20% and 11% of its equity and total
assets on average in net cash while at the same time increasing its asset base by 41%,
store count by 60% and investing a total of P13 bn in capex. This financial flexibility was
rewarded in the earnings base increasing by 73% from P2.7 bn to P4.6 bn in 2013E. The
rewards of free cash flow generation cannot be underestimated.
From 2013E to 2016E, we expect FCF to grow at twice the pace of earnings or 47%
annually versus EPS growth of 21% annually. The difference is largely explained by capex
levels moderating to historical levels in 2015. Over the next two years, more aggressive
expansion in China and Vietnam should push capex to nearly 2x the long-term average.
Nonetheless, we expect Jollibee to maintain net cash to equity and total assets at 23%
and 14% respectively, which is higher than historical averages.
Figure 14: Jollibee financial prowess – power of FCF generation cannot be underestimated All figures in P mn
2009 2010 2011 2012 2013E 2014E 2015E 2016E Historical
CAGR
‘13E – ‘16E
CAGR
Cash flow from operations 6,551 5,315 5,596 8,044 8,217 9,303 10,972 12,042 7.1% 13.6%
Capex (2,575) (2,553) (3,700) (3,756) (5,376) (5,848) (3,048) (3,048)
Acquisitions (835) (2,715) (816) (128)
Gross FCF 3,032 190 (1,738) 4,160 2,841 3,455 7,924 8,994 11.1% 46.8%
Dividends (844) (2,557) (1,197) (2,274) (2,610) (3,221) (4,079) (5,043)
Net FCF 2,188 (2,366) (2,935) 1,886 232 235 3,844 3,951 -4.8% nmf
Net cash 6,181 3,936 1,035 3,421 3,653 3,887 7,732 11,683
Net cash-to-equity 38.0% 22.3% 5.1% 15.6% 15.3% 14.9% 26.8% 36.8%
Source: Company data, Credit Suisse estimates
First, the order of business will be returning cash to shareholders as we assume dividends
grow at 25% annually from 2013E to 2016E. That being said, given the cash on the
balance sheet, there is the potential for positive dividend surprises. The dividend pay-out
ratio could exceed our 75% assumption in 2015.
Second, we believe there is over 50% possibility for a large-scale acquisition in the next
12-24 months. The company is looking to enter the highly appealing Indonesian market by
acquiring a local player(s) in much the same way it did in China and Vietnam. Such an
acquisition could be incremental to ROIC over 2-3 years, and justify deploying the capital.
We believe a new large-scale driver of higher earnings growth over the long term would
clearly be positive for the multiple argument on Jollibee shares.
Free cash flow generation is
vital for consumer
franchises to grow
Jollibee generates enough
FCF to maintain a net cash
balance while increasing its
asset and store base by
41% and 60% since 2009
FCF is expected to grow 2x
faster than earnings over
the next three years
Jollibee’s strong balance
sheet can support positive
dividend surprises
High probability that Jollibee
makes an acquisition in
Indonesia
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 10
Maximising returns from existing formats The majority of Jollibee’s EPS growth is expected to be derived from rising EBITDA
margins over the next four years, which essentially translates into extracting greater
productivity from the existing store base of 2,800 and deployed capital base of nearly
US$650 mn.
Figure 15: Attribution of Jollibee’s EPS growth % of total EPS growth coming from SSSG, new stores and EBITDA margins expansion. Figure in bold is YoY EPS growth
26%44% 34% 42%
7%
15% 11% 13%
67%41%
55%
45%
FY13E FY14E FY15E FY16E
SSSG Store growth EBITDA Margin Expansion
23%
18%
24%
18%
Source: Credit Suisse estimates
Store profitability drives franchise value and
supports valuation
Positive relationship between EBITDA/store and EV/store
Maximising store profitability (commonly measured as EBITDA/store) is critical for
foodservice businesses, as investors tend to reward foodservice businesses that succeed
at increasing EBITDA/store. Figure 16 shows a strong (R-square = 0.99) positive
relationship between EBITDA/store and EV/store for regional and global foodservice
operators. Jollibee is on the trend line, meaning that the market is appropriately paying for
Jollibee’s store/outlet productivity levels. This relationship is exponential, so as profitability
per store increases, EV/store should rise at a quicker rate. This is evident in historical
precedents for both Jollibee and foreign foodservice operators.
The key driver of Jollibee’s growth and valuation will come from leveraging greater
profitability from existing stores. From 2012 to 2016E, we expect EBITDA per store to
increase by 11% annually from US$63,000 to US$96,000.
Rising EBITDA margins
from harvesting existing
assets will be key driver of
EPS growth
Key driver of enterprise
value is productivity—
EBITDA/store
EBITDA/store to increase
11% annually from 2012 to
2016E
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 11
Figure 16: Strong positive relationship between EBITDA/store and EV/store for
foodservice operators 2013E EBITDA/ avg. store (log scale) vs EV/ avg. store, US$ mn
Jollibee
Chipotle
McDonald'sWendy's
Yum!
Jubilant
CDCAjisen
Tsui Wah
Domino's0
5
10
15
20
25
30
35
40
0.0 0.1 1.0
EV
/avg
. sto
re (
US
Dm
)
EBITDA/avg. store (USDm)
R²=0.99
Source: Company data, Credit Suisse estimates
Figure 17: Jollibee has productivity levels in line with
most peers … 2013E EBITDA/ avg. store, US$ mn
Figure 18: …suggesting significant upside potential in
enterprise value as productivity rises 2013E EV/ avg. store, US$ mn
0.030.06 0.07 0.08 0.09 0.09
0.20
0.29
0.42
0.51 0.67 0.88 1.34 1.58 2.46 3.09 3.10
10.90
32.39
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Historical precedents show that EBITDA/store growth drives multiple expansion
Figure 19 and Figure 20 break down the growth in EV/store for Chipotle and Yum! Brands,
which have experienced EV/store CAGRs of 33% and 26%, respectively, over the last two
years. For Chipotle, 22% of the EV/store appreciation from 2010-12 was driven by
EBITDA/store CAGR of 8%, with the remaining 78% from multiple expansion of 25%
CAGR. Similarly, for Yum! Brands 39% of EV/store growth was due to EBITDA/store
CAGR of 11%, while 61% was driven by multiple expansion of 15% CAGR.
Developed market
precedents show that when
EBITDA/store rises,
EV/store increases at a
quicker pace
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 12
Figure 19: Chipotle breakdown in EV/store expansion
(2010-12)
Figure 20: Yum! Brands breakdown in EV/store expansion
(2010-12)
$4.43
$0.76
$2.70
$7.89
2010 EV per
store
EV gain - from
higher profit
EV gain - from
multiple
expansion
2012 EV per
store
(in USDm)
8% EBITDA
CAGR
25% multiple
CAGR
$0.56
$0.08
$0.19
$0.82
2010 EV per
store
EV gain - from
higher profit
EV gain - from
multiple
expansion
2012 EV per
store
(in USDm)
7% EBITDA
CAGR
15% multiple
CAGR
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
From the above examples it is clear that for companies that successfully increase store
profitability in a sustainable manner, valuation increases by an even greater degree. Thus,
the relationship between EBITDA/store and EV/store is not just a linear correlation but an
exponential one, and companies at the early stages of the trend line such as Jollibee have
a lot of incentive to focus on store profitability in order to warrant exponential growth in
enterprise value.
Market has already begun to reward Jollibee’s productivity improvements … more
to come
Jollibee’s per store valuation has increased by 35% in the last two years, triggered by 15%
improvement in store level profitability Figure 21. This confirms our view that investors
respond positively to EBITDA/store growth and suggests that further increases in
productivity for the firm can continue to drive higher shareholder value.
Figure 21: Jollibee’s recent re-rating has been triggered by EBITDA/store improvement Jollibee breakdown in EV/store expansion (2011-current)
$0.87
$0.27
$0.44
$1.58
2011 EV per store EV gain - from higher
profit
EV gain - from multiple
expansion
Current EV per store
(in USDm)
14.5% EBITDA CAGR
20.6% multiple CAGR
Source: Company data, Credit Suisse estimates
Rises in EBITDA/store have
an exponential impact on
enterprise value
Market has already
rewarded JFC’s 15%
increase in EBITDA/store,
but there is more to come
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 13
Jollibee’s path to improved profitability
The key drivers to Jollibee’s store level profitability rising are strong domestic demand and
traffic growth in the Philippines (accounting for 80% of growth going forward), optimising
the format/concept portfolio, achieving greater scale in China, achieving profitability in
SuperFoods Group (Vietnam) and more efficient back-end/IT. We expect these drivers to
lead to 140 bp EBITDA margin expansion over the next four years. Interestingly, our
2016E EBITDA margin forecast of 11.3% is below the 2007 peak of 11.7%. Jollibee is a
superior operator today with more scale, so by capitalising on the existing assets, EBITDA
margin upside potential is a reality.
Optimising brand portfolio in the Philippines
With a portfolio of six brands in the Philippines, Jollibee has a wide exposure to the overall
QSR industry.
Figure 22: JFC’s domestic brand portfolio
Brand Description 2012 Domestic
Sales (P mn)
Number of
stores (3Q13)
% franchised
stores
1 Jollibee American fast food 46,136 795 50.2%
2 Chowking Chinese casual food 11,995 388 60.3%
3 Mang Inasal Filipino casual food 8,304 462 90.3%
4 Greenwich American pizza 4,614 198 38.4%
5 Red Ribbon Bakery 3,691 249 44.2%
6 Burger King American fast food 923 29 0.0%
Source: Company data, Credit Suisse estimates
However, in terms of productivity, sales/store has always been the highest at the Jollibee
brand, which is 61% of domestic system-wide sales (Figure 23). Therefore, growth in
sales/store will be higher at non-Jollibee brands. We expect Jollibee brand sales/store to
increase by 6%/year from 2012 to 2016E versus 11%/year at the other brands combined
(Figure 23).
Jollibee is on the right track as it is actively strengthening the non-Jollibee brands through
advertising and marketing efforts, refurbishing current stores, and introducing new
products. The 2011 acquisition of the Burger King licence in the Philippines will also drive
up store productivity in the long term, as sales productivity for Burger King at P36 mn/store
is the second highest out of Jollibee’s domestic brand portfolio (but currently only 1-2% of
domestic sales).
Figure 23: Domestically, Jollibee format leads in sales
efficiency… Sales/avg. store by brand (2012, P mn) – Domestic sales only
Figure 24: …but we expect both Jollibee and non-Jollibee
stores to improve productivity Sales/avg. store by brand (2011-16E, P mn) – Domestic sales only
60.5
35.530.9
22.718.6 17.6
(PH
Pm
)
56.260.5
64.168.5
72.6 76.9
20.7 23.2 25.1 27.9 31.1 34.7
FY11 FY12 FY13E FY14E FY15E FY16E
(PH
Pm
)
Jollibee sales/avg store
Non-Jollibee sales/avg store
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
EBITDA margins expected
to expand 140 bp over next
four years with real
possibility of positive
surprises
Six brands in the Philippines
led by the highly popular
Jollibee brand, account for
61% of domestic system-
wide sales
Sales/store at non-Jollibee
brands to grow 2x faster
than Jollibee brand
Burger King stores are very
productive, and will be key
contributor as count rises
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 14
Turnaround story in China
With 15% of outlets and 13% of system-wide sales coming from China, a turnaround in
productivity in the country would have a material impact on overall group productivity.
Jollibee operates 401 stores under three key brands in China – Yonghe King, Hong
Zhuang Yuan and San Ping Wang (acquired in 2012).
Figure 25: JFC’s China brand portfolio
Brand Description 2012 sales (P
mn)
Number of
stores (3Q13)
% franchised
stores
1 Yonghe King Taiwanese casual food 9,227.1 311 2.6%
2 Hong Zhuang Yuan Chinese congee chain 1,845.4 44 2.3%
3 San Pin Wang Chinese noodle chain 922.7 46 2.2%
4 12 Sabu Taiwanese hotpot (48%
owned)
na 3 0%
Source: Company data, Credit Suisse estimates
2012 was a difficult year for China QSR industry as weaker macro led to lower sales
growth yet operating cost inflation was high. 2013 challenges for the industry largely came
from food scares and changes in meal preferences.
Year-to-date, Jollibee’s Chinese trends have improved with SSSG of 8% due to stronger
traffic and less discounting. Jollibee’s formats primarily serve beef & pork based meals, so
benefitted from concerns over poultry by consumers. Jollibee has successfully
repositioned its brands, invested more in product development, renovated old stores and
closed down unproductive stores to drive up sales/store. For example, with Hong Zhuang
Yuan, the group closed six foodservices in 2012 and remodelled eight, with the newly
modelled foodservices achieving higher average daily sales and double-digit sales growth.
We view Jollibee’s commitment to increasing efficiency and productivity in its China outlets
as positive for the firm’s sustainability in the country in the long term. The company’s low
franchise rate in China also gives it more control in terms of positioning and expanding the
brands and efficiently executing turnarounds.
With stronger comp store growth coupled with ~40 new stores per year, we believe the
Chinese operations can sustain 25% total growth in coming years.
Inflection point of margin expansion
With sales/store improving across the different brands and regions, margin expansion will
be a factor of positive operating leverage through scale
Figure 26 and Figure 27 break down our FY2013-16E forecasts for Jollibee’s system-wide
sales. Geographically, we forecast domestic sales/store to increase at an 8% CAGR from
2013 to 2016, and international sales/store at 5.7% CAGR over the same time period. In
terms of store type, we forecast both company-owned and franchise sales/store to grow at
steady rates of 7% and 8% p.a., respectively, for the next three years. This leads to
system-wide sales/store 2013-2016 CAGR of 7.7%, an acceleration from the last two
years.
Stronger trends in China will
have a material impact on
overall JFC earnings
SSSG trends in China have
strengthened to high single-
digits and are ahead of
foreign competitors
Strong commitment to
Chinese market
Jollibee’s China operations
can sustain 25% total
growth
Scale benefits still to be
reaped from the multiple
brands and markets
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 15
Figure 26: Domestic sales/store acceleration driving
growth in system-wide sales per store Jollibee sales per avg. store (by region), 2011-16E
Figure 27: Both company-owned and franchised stores
expected to increase productivity Jollibee sales per avg. store (by store type), 2011-16E
30
35
40
45
50
FY13E FY14E FY15E FY16E
Domestic sales per avg. store (PHPm)
Intl sales per avg. store (PHPm)
Systemwide sales per avg. store (PHPm)
30
35
40
45
50
FY11 FY12 FY13E FY14E FY15E FY16E
Systemwide sales per avg. store (PHPm)
Company-owned sales per avg. store (PHPm)
Franchised stores sales per avg. store (PHPm)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
From 2009 to 2012, Jollibee’s gross, EBITDA and EBIT margins deteriorated by 220 bp,
130 bp and 80 bp, respectively. This was primarily due to COGS (food supplies,
packaging, store and manufacturing costs) growing faster than revenue. The negative
trend has been reversed and should be sustained because raw material inflation has been
less than 1%. Jollibee only imports ~20% of its raw materials. So when combined with
higher store productivity, margins will benefit. We forecast Jollibee’s gross, EBITDA and
EBIT margins to expand by 192 bp, 134 bp and 215 bp from 2012 to 2016 (Figure 28),
resulting in EBITDA/store three-year forward CAGR of 11%. The positive relationship
between EBITDA/store and valuation implies material upside for Jollibee’s enterprise
value.
Figure 28: Margin expansion has commenced…. Jollibee margins, 2011-2015E
Figure 29: …leading to improvement in store profitability
relative to regional peers EBITDA/avg. store (US$ mn) , 2011-2015E
17.8% 17.8% 18.3% 18.7%19.3% 19.7%
10.1% 9.9% 10.6% 10.8% 11.2% 11.3%
6.2% 6.1% 6.8% 7.2% 7.9%
8.3%
2011 2012 2013E 2014E 2015E 2016E
Gross margin EBITDA margin EBIT margin
0.070.07 0.08
0.080.09
0.12
0.06
0.09
0.11
0.13
0.08
0.09
0.09
0.080.08
2011 2012 2013E 2014E 2015E
Jollibee Ajisen Jubilant
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Cost inflation is benign and
only ~20% of RMs are
imported
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 16
SuperFoods Group JV—Vietnam exposure
Figure 30: JFC’s 2012 investment in SuperFoods Group
Jollibee Group
(through Jolliee
Worldwide Pte Ltd)
Viet Thai
International
SuperFoods Group
US$35m loan
50%
Highlands Coffee
-75 coffee shops as
of 2012-Highlands Coffee
Packaged Products
Pho 24
-62 restaurants as of
2012-Presence in HK,
Japan and ASEAN
Hard Rock Cafe
(Macau, HK, and
Vietnam franchise)-3 outlets as of 2012
50%
Source: Company data, Credit Suisse estimates
Joint venture with Viet Thai International
On January 20 2012, JFC acquired a 50% stake in SuperFoods Group for US$25 mn
through an agreement with its joint venture partner Viet Thai International Joint Stock
Company (VTI). SuperFoods owns and operates Highland Coffee Shops in Vietnam, Hard
Rock Café franchises in Macau, Hong Kong and Vietnam, and Pho 24 foodservices in
Vietnam, Indonesia, Philippines, Hong Kong, Cambodia and Japan. It also sells packaged
coffee under the Highlands brand through retail outlets.
The Framework Agreement included a US$35 mn loan to VTI and a US$5 mn advance to
SuperFoods Group. The US$35 mn loan to VTI is payable in June 2016 and bears interest
of 5% p.a. payable in lump sum also in June 2016. The loan is to be used for general
corporate purposes and is secured by a mortgage by all of VTI’s shares in SuperFood
Holding Companies.
Buying exposure to fastest growing QSR market in APAC at a reasonable price
SuperFood’s presence in Vietnam is a key growth driver for JFC over the long term, as it
provides JFC exposure to not just the large coffee market but also to the fast-growing
Vietnamese QSR industry, which is forecasted to grow at 14.3% p.a. over the next five
years (highest in APAC). JFC also plans on serving Highlands Coffee in its own outlets to
upgrade the quality of its coffee at what we would imagine more favourable margins.
Implied P/B for SuperFoods based on the purchase price was around 1.59x (using 2012
book value). Implied EV/store was US$0.4 mn/store, which was a 54% discount to JFC’s
EV/store at the time of purchase. Granted, SuperFoods Group is still operating at a net
loss, and the 2012 impact on JFC’s bottom line was negative P51 mn (albeit only 1.4% of
group net income), this is partially due to increasing store costs while accelerating store
expansion growth (Highlands Coffee store growth was 39% in 2012). Expanding market
share and regional presence is the priority right now and we expect SuperFoods to break
even by 2015 due to increasing scale and moderating costs.
Jollibee has optionality on
Vietnam through attractive
investment in SuperFoods
Vietnam expected to be
fastest growing QSR
industry in APAC
Acquired the stake for 50%
discount to JFC valuation at
the time
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 17
Indonesia offers the next leg of upside
Indonesia is the most attractive foodservice industry in Asia given its size, future growth
and potential for modernisation, yet Jollibee does not have a single foodservice outlet in
this market. We believe within the next two years (likely in 2014), Jollibee will announce its
intention to enter Indonesia, or better yet, acquire an existing player.
Jollibee’s overriding strategy is to use the Jollibee format in markets where there is a large
number of Overseas Filipino Workers (OFWs) who can associate with the brand and its
food. For Indonesia, it is estimated that there are less than 10,000 OFWs, so it is unlikely
that Jollibee will use this format for expansion. To put that in perspective, as of the end of
2012, there were 160,000, 120,000 and 51,000 OFWs in Singapore, Hong Kong and
Malaysia, respectively, and where the company has two Jollibee formats combined. The
Singapore Jollibee foodservice is the most productive globally and Hong Kong is not too
far behind. Malaysia is a market where the company could enter Kuala Lumpur with its first
Jollibee store sometime in 2014.
As we mentioned earlier, Indonesia’s foodservice and QSR industries are expected to
grow at 9% and 12% annually going forward. Penetration rates today are low with 800 and
20 foodservice and QSR outlets per 1,000 people, respectively. QSR spending per capita
is the second lowest in the region at only US$7/year. If we assume Indonesia reaches the
same level of penetration as the Philippines over the next seven years, this would imply a
total of 15,000 QSR locations versus 5,200 in 2012 or 13% CAGR. This would be on the
back of QSR per capita spending more than quadrupling from US$7 annually to US$30
annually.
Indonesia is a foodservice and QSR market simply too enticing for an experienced and
cash rich operator like Jollibee to ignore. We believe 2014 could be the year Jollibee
makes its long awaited foray into Indonesia, and this will likely be accretive to EPS within
the next two years and lead to earnings upgrades. The market is not pricing in this
possibility, in our view.
Indonesia QSR profile
The QSR industry in Indonesia is heavily fragmented with more than 5,500 locations, yet
the largest player KFC (PT Fast Food Indonesia Tbk is the master franchisee) has only
12% of the outlets. Chain QSRs dominate the industry over the independents with 83% of
sales, and this is expected to increase going forward.
Asian fast food is the leading format in Indonesia followed by chicken-based fast food.
Western-style QSR concepts (burgers, pizza) have the potential to post the highest growth
rates given their extremely low penetration today. A typical Indonesian meal would
comprise of steamed rice, one or two main dishes such as meat, fish, poultry or vegetable
served together with sides. This preference lends itself to Asian and chicken QSR
concepts. But as wealth changes so do preferences, so we would not be surprised to see
western style QSR concepts continuing to capture market share.
High probability that Jollibee
enters Indonesia in 2014 or
2015
Jollibee banner not likely to
work in Indonesia, so
acquisition is preferred route
Indonesians only spend
US$7/year on QSR vs NJA
average of US$137
Share price does not reflect
the Indonesia possibility
KFC is the largest in
Indonesia with 12% of all
QSR outlets
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 18
Figure 31: Indonesian QSR dominated by chains … Sales figures in Rp tn
Figure 32: … while chicken and western style QSR
concepts have been gaining share Sales figures in Rp tn
8 9 10 1112 14
15 1622
23
33
3
4
74%
76%
78%
80%
82%
84%
86%
0
5
10
15
20
25 Independent QSR Sales
Chain QSR Sales
% Chain QSR
3 4 4 5 5 5 6 7
77
89
1011
1213
29%
30%
30%
31%
31%
32%
32%
33%
33%
34%
34%
0
5
10
15
20
25 Chicken QSR Sales
Other QSR Sales
% Chicken QSR
Source: Frost & Sullivan Source: Frost & Sullivan
The top 12 players in the industry control 62% of the outlets, with the largest, KFC,
controlling 12%. Chicken and western style QSR are more concentrated because they are
relatively new, while Asian QSR is more fragmented with a large number of independent
players. KFC controls 50% of the chicken QSR outlets followed by California Fried
Chicken at 27%. In terms of pricing, not surprisingly the chicken and western QSR formats
have higher average meal and average ticket values.
Figure 33: Leading chain QSR operators in Indonesia
Chain QSR Brand Franchisee Format # of Outlets Market Share by Outlet
Kentucky Fried Chicken (KFC) PT Fast Food Indonesia Tbk Chicken 446 12.1%
California Fried Chicken PT Pioneerindo Gourmet International Tbk Chicken 244 6.6%
Baskin Robbins PT Trans Ice Ice Cream 219 5.9%
Pizza Hut PT Sarimelati Kencana Pizza & Pasta 207 5.6%
Dunkin' Donuts Dunkin' Donuts Indonesia Bakery 200 5.4%
A&W PT Biru Fastfood Nusantara Burger & Fries 200 5.4%
Es Teler 77 PT Top Food Indonesia Asian 180 4.9%
Ayam Bakar Wong Solo Various Franchisees Asian 160 4.3%
Hoka Hoka Bento PT Eka Bogainti Asian 150 4.1%
Texas Chicken PT Cipta Selera Murni Chicken 140 3.8%
McDonald's PT Rekso Nasional Food Burger & Fries 124 3.4%
Burger King PT Mitra Adiperkasa Tbk Burger & Fries 40 1.1%
Top 12 2,310 62.4%
Source: Company data, Frost & Sullivan
Jollibee’s Indonesian opportunity
We believe Jollibee’s preference would be to replicate what it did in China and Vietnam by
acquiring an existing QSR operator in Indonesia given the following rationale:
■ Access to the highly attractive market size and growth;
■ An existing brand/concept that appeals to the unique meal preferences of
Indonesians;
■ Filipino Peso relative to Indonesian Rupiah is near all-time highs;
Asian food QSRs are
popular in Indonesia
Plenty of rational for Jollibee
to be an acquirer in
Indonesia
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 19
■ Utilise operating, financial and technology scale to growth the chain at a much faster
rate;
■ Acquisition capacity of P25 bn (US$570 mn) assuming 3x net debt-to-EBITDA.
Having completed seven acquisitions since 2008 (Figure 34Error! Reference source not
found.), Jollibee has shown a knack for making acquisitions, especially in acquiring local
brands/concepts in foreign markets such as China and Vietnam. As we mentioned earlier,
with capacity of at least US$600 mn and existing operations generating positive cash flow
going forward, we believe management is highly motivated to buy assets in Indonesia
sooner rather than later. Management has mentioned it is difficult to get families to sell
their businesses in Indonesia, but with time and capital, this can often be overcome.
We have reason to believe that the Burger King master franchise is for sale. It is currently
owned by Mitra Adiperkasa (MAPI.JK, Rp5,350.00, NEUTRAL, TP Rp7,300.00) and they
have 40 outlets. MAPI has not invested aggressively behind this format and could use the
capital to pay down debt levels. If we assume the Burger King stores in Indonesia are 10-
15% less productive than Jollibee’s Burger King stores in the Philippines and an EV/Sales
multiple of 1.5-2x, then this acquisition would likely cost US$45-50 mn or P2 bn, well within
Jollibee’s capacity.
Acquiring the master franchise rights to Burger King Indonesia is an interesting start and
consistent with owning the same rights in the Philippines, but the more interesting and
earnings impactful acquisition could come from acquiring the local operators such as
California Fried Chicken, Es Teler 77, Ayam Bakar Wong Solo and/or Hoka Hoka Bento.
These businesses would be equally scalable, likely more profitable currently than Burger
King and have formats/concepts that resonate well with Indonesian preferences.
Jollibee has at least US$600
mn of acquisition capacity
Burger King master
franchise could be of
interest to Jollibee …
… but likely looking for
something larger as well
0
6 D
ec
em
ber 2
01
3
Jo
llibe
e F
oo
ds
Co
rpo
ratio
n
(JF
C.P
S / J
FC
PM
) 2
0
Figure 34: Jollibee acquisition history—buying local brands in foreign markets
Company Name Year
Acquired
% stake Price paid
(P mn)
Valuation Country Key brands/description Rationale
SuperFoods Group 2012 50% 1,025 1.6x 2012 P/B Vietnam Highlands Coffee: Coffee shop chain in
Vietnam and producer of packaged coffee;
Hard Rock Café: franchisee in Macau,
Hong Kong and Vietnam
To expand presence in Vietnam, serve
Highlands Coffee within JFC restaurants to
upgrade coffee quality at still affordable
prices
Wowprime 2012 48% 98 N/A Taiwan 12 Sabu: hotpot restaurant in Taiwan
known for low-priced hot dishes
To expand QSR exposure in Taiwan
San Ping Wang 2012 55% 196 12.2x 2012 P/E; 4.2x
2012 P/B
China San Ping Wang: beef noodle business in
South China
To expand QSR exposure in China
BK Group (Burger King
Philippines)
2011 54% 66 0.6x 2011 P/B Philippines Burger King: Sole franchisee of the brand in
the Philippines
To gain presence in premium price segment
of hamburger category in fast food market
Chow Fun Holdings 2011 80.55% (from
13.89%)
140 8x 2011 P/B USA Jinja Bar and Bistro: Asian casual
restaurant chain in New Mexico, USA
To enhance capability in developing Asian
restaurant concepts for mainstream
consumers in the USA
Mang Inasal 2010 70% 2,976 15.3x 2010 P/E; 3.1x
2010 P/B
Philippines Mang Inasal: Filipino fast food Apply JFC's scale and know-how to increase
Mang Inasal's sales, store network, and
operational efficiency
Hong Zhuang Yuan 2008 100% 2,648 17.6x 2008 P/B China Hong Zhuang Yuan: congee chain
restaurant in China
To expand QSR exposure in China, to be
leader in category between fast casual and
casual restaurants
Source: Company data, Credit Suisse estimates
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 21
Capitalising on the best growth markets The foodservice industry is underpenetrated in emerging Asia, as category spending per
capita in the region is 85% lower than that of developed Asia. The reason behind the
disproportionately lower spending levels is significantly lower GDP/capita, wealth levels and
urbanisation rates. This is set to change as urbanisation and wealth in emerging Asia is
projected to grow ahead of developed peers, leading to accelerating consumption growth
and upside potential for the foodservice industry. The foodservices market size in emerging
Asia is expected grow 7.1% CAGR over the next five years, compared to a 1.5% CAGR for
developed Asia. Jollibee is well positioned to benefit from accelerated spending in the region
as it has 79% of outlets in the Philippines and 15% in China, with optionality in Vietnam.
Increasing outlet penetration drives spending per
capita … but not in all markets
There is a direct linear relationship between total foodservice market size and number of
foodservice outlets, but the relationship between per capita spending vs outlets per capita
is slightly more complicated. Saturation can start to occur at 8-10 outlets per 1,000 people,
but the only Asian market seeing this potentially is Korea (Figure 35 and Figure 36). For
countries oversaturated with QSR outlets, incremental sales per outlet starts to decline for
reasons such as cannibalisation, consumers upgrading to different dining formats, etc.
Nevertheless, countries at the start of the curve will still experience acceleration in food
service spending/capita as outlets/capita rise due to under-penetration.
Thus, industry growth can be broken down to two types:
(1) Outlet-driven growth: Increase in spending per capita due to higher penetration of outlets.
(2) Narrowing the gap: In countries such as China where the market is at risk of being
saturated relative to demand (hence lying below the curve), more outlets/capita will not
drive incremental spending growth. Instead, demand will have to catch up and “narrow
the gap” and this will be due more to factors such as urbanisation and discretionary
income growth.
Figure 35: Philippines, China and Vietnam below the curve in food service spending per
capita relative to outlet penetration Food service outlets/1,000 persons vs food service spending/capita (USD), 2012. Red markers denote markets where Jollibee is present
Philippines
China
Hong Kong
IndiaIndonesia
Japan
Malaysia
Singapore
South Korea
Thailand Vietnam
Australia
Russia
Brazil
USA
France
Germany
UK
0
500
1,000
1,500
2,000
2,500
0 2 4 6 8 10 12
Fo
od
serv
ice s
pend
ing
/cap
ita (
US
D)
Food service outlets/1,000 persons
R²=0.23
Source: World Bank, Euromonitor
Key drivers of foodservice
penetration are incomes,
wealth and urbanisation
Outlet expansion is the
leading driver of higher per
capita spending on
foodservice
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 22
Figure 36: Fast food spending per capita relative to outlet penetration is similarly low in
emerging Asian countries Fast food outlets/1,000 persons vs fast food spending/capita (US$), 2012. Red markers denote markets where Jollibee is present
Philippines China
Hong Kong
IndiaIndonesia
Japan
Malaysia
SingaporeSouth Korea
Thailand
Vietnam
Australia
Russia
Brazil
USA
France
Germany
UK
0
100
200
300
400
500
600
700
0.0 0.2 0.4 0.6 0.8 1.0 1.2
Fast
foo
d s
pend
ing
/cap
ita (
US
D)
Fast food outlets/1,000 persons
R²=0.38
Source: World Bank, Euromonitor
With the exception of China, foodservice outlets in emerging Asia are underpenetrated
Compared to developed Asian markets such as Australia, Japan, Hong Kong and
Singapore, penetration of total foodservice outlets and fast food outlets in emerging Asia is
54% and 59% lower respectively (Figure 37 and Figure 38). The only exceptions are
Vietnam and China, where the high penetration of food service outlets despite lower
spending/capita can be attributed to highly penetrated street stalls segment (although fast
food outlet penetration in Vietnam remains low). Not surprisingly, the under-penetration in
the region is reflected by lower spending per capita, as spending on foodservices
(cafes/bars, full service foodservices, fast food, street stalls, etc) per capita in developing
markets is 85% lower on average. In the Philippines, where Jollibee has 79% of its stores,
foodservice spending per capita each year is the second lowest in the region at only
US$100 (Figure 39).
Figure 37: Foodservice outlets underpenetrated in most
emerging countries… Foodservice outlets/ 1,000 persons, 2012. Red bars denote markets where Jollibee is present
Figure 38: …with fast food outlet penetration following a
similar trend Fast food outlets/ 1,000 persons, 2012. Red bars denote markets where Jollibee is present
11.9
6.2 5.85.2 4.9
2.9 2.0 2.0 1.61.1 0.8 0.8
Avg: 3.8
1.2
1.0
0.8
0.6
0.4
0.3 0.20.110.09
0.060.060.02
Avg: 0.4
Source: World Bank, Euromonitor Source: World Bank, Euromonitor
Foodservice outlet
penetration and spending
per capital are 54% and
85% lower in EM Asia than
DM Asia
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 23
Figure 39: Strong divergence in foodservice
spending/capita between developed and developing
markets Foodservice spending/capita (US$), 2012. Red bars denote markets where Jollibee is present
Figure 40: Fast food spending/capita in emerging markets
similarly underpenetrated Fast food spending/capita (US$), 2012. Red bars denote markets where Jollibee is present
2,1332,037
1,678
1,444
1,225
375 342 340 328158 100 76
Avg: 853
649
392
319
168 159
7948 38 30 12 7 5
Avg: 159
Source: World Bank, Euromonitor Source: World Bank, Euromonitor
Rising wealth and urbanisation key drivers to outlet
and spending growth
The key factors driving accelerating growth in the NJA foodservice industry will be rising
urbanisation and wealth, as there is a clear positive relationship between foodservice
spending per capita and both urbanisation rate and wealth per adult.
The income effect
There is a strong positive correlation between both foodservice spending/capita and fast
food spending/capita with GDP per capita (Figure 41 and Figure 42). Developing countries
in Asia are all clustered in the bottom left corner of the chart, with low levels of both
spending and GDP per capita, but as nations get wealthier and per capita income
increases, spending per capita also starts to increase. Thus, a key driver of rising
spending per capita in the food service industry for emerging countries (where Jollibee is
present) will be GDP/capita growth.
Incomes in Jollibee’s core
markets are expected to
grow by 8% p.a. on average
over the next five years
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 24
Figure 41: GDP per capita highly correlated to not only food service spending per
capita…. Foodservice spending/capita/annum (US$) vs GDP per capita (US$). Red markers denote markets where Jollibee is present
AustraliaJapan
Hong Kong
SingaporeSouth Korea
VietnamMalaysiaCN
THIndonesia
PhilippinesIndia0
500
1,000
1,500
2,000
2,500
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
Fo
od
serv
ice s
pend
ing
per
cap
ita
(US
D)
GDP per capita (USD)
R²=0.91
Source: World Bank, Euromonitor
Figure 42: ….but also fast food spending per capita Fast food spending/capita/annum (US$) vs GDP per capita (US$). Red markers denote markets where Jollibee is present
Australia
Japan
Hong Kong
SingaporeSouth Korea
VN
Malaysia
China
THIndonesia
PHIN
0
100
200
300
400
500
600
700
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000
Fast
foo
d s
pe
nd
ing
/cap
ita (
US
D)
GDP per capita (USD)
R²=0.83
Source: World Bank, Euromonitor
Figure 43 highlights the positive relationship between foodservice spending per capita and wealth per adult for emerging and developed countries globally. Low foodservices consumption in emerging Asia is also explained by significantly lower wealth per adult in the region, as average wealth per adult in emerging Asia is only 5.5% that of average wealth per adult in more developed Asia (Japan, Hong Kong, South Korea, Singapore, Australia). As per the Credit Suisse Global Wealth Report 2013, Credit Suisse expects the pace of wealth generation in emerging markets to continue to be greater than that of developed markets, with wealth growing by a 9% CAGR over 2013-18 for global emerging markets against 6% CAGR for developed markets. In particular, China is expected to be the fastest growing at 10% over the next five years. Accelerating wealth growth in emerging Asia over the next few years makes a convincing case that foodservice consumption in the region has significant growth potential.
Emerging Asia’s wealth
growth expected to
accelerate in coming years
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 25
Figure 43: Rising wealth per adult correlated with higher food service spending/capita…. Foodservice spending/capita/annum (US$) vs Wealth per adult (US$). Red markers denote markets where Jollibee is present
PH
CN
Hong Kong
ININDO
Japan
MY
SingaporeSouth Korea
TH
VN
Australia
Brazil
USA
France
Germany
United Kingdom
0
500
1,000
1,500
2,000
2,500
-50,000 50,000 150,000 250,000 350,000 450,000
Fo
od
se
rvic
e s
pe
nd
ing
pe
r cap
ita
(US
D)
Wealth per adult (USD)
R²=0.68
Source: World Bank, Euromonitor
The relationship with fast food spending is even stronger (to the detriment of wealthy countries’ waistlines) as Figure 44 highlights. Except for China, emerging Asian countries lie below the trend line, meaning that fast food spending relative to wealth is disproportionality low and leaves lots of room for “catch-up”. This supports our belief that the fast food industry remains underpenetrated in the region and significant upside exists from closing the gap.
Figure 44: …as well as higher fast food spending/capita Fast food spending/capita/annum (US$) vs Wealth per adult (US$). Red markers denote markets where Jollibee is present
PH
China
Hong Kong
India
Indonesia
Japan
Malaysia
Singapore
South Korea
Vietnam
Australia
Brazil
USA
FranceGermany
UK
0
100
200
300
400
500
600
700
0 100,000 200,000 300,000 400,000
Fast
foo
d s
pend
ing
/cap
ita (
US
D)
Wealth per adult (USD)
R²=0.71
Source: World Bank, Euromonitor
Fast food and urbanisation go together like burgers and fries
As urbanisation rises, penetration of fast food outlets increases and this drives per capita
spending toward fast food (Figure 45 and Figure 46). Urbanisation remains below 50% for
emerging Asian countries. There is still significant spending/capita upside as urbanisation
rates in developed countries can reach 80-100%. In the Credit Suisse report, Opportunities in
an urbanizing world, CS estimates Non-Japan Asia will urbanise from 40% of its population in
2010 to 63% in 2050, and that the region is closest to the urbanisation per capita GDP growth
sweet-spot, where countries achieve peak real GDP/capita growth of close to 6% when
urbanisation is in the range of 30-50%. As urbanisation and GDP/capita increase in NJA in the
next few years, food services consumption should also accordingly accelerate.
Fast food spending in
emerging Asia is
disproportionately low
relative to wealth
There is an exponential
relationship between
urbanisation rate and food
service spending/capita
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 26
Jollibee’s core markets (the Philippines, China and Vietnam) are expected to see urbanisation
increase from an average of 42% currently to 67% in 2050, higher than the regional average.
Figure 45: Foodservice spending/capita accelerates as urbanisation rates rise Foodservice spending/capita/annum (US$) vs urban population as % of total. Red markers denote markets where Jollibee is present
Phlippines
China
Hong Kong
India Indonesia
Japan
Malaysia
Singapore
South Korea
ThailandVietnam
Australia
Russia
Brazil
USA
France
Germany
United Kingdom
0
500
1,000
1,500
2,000
2,500
0.0 20.0 40.0 60.0 80.0 100.0 120.0
Fo
od
se
rvic
e s
pe
nd
ing
pe
r cap
ita
(US
D)
Urban population as % of total
R²=0.62
Source: World Bank, Euromonitor
Figure 46: Fast food spending/capita accelerates as urbanisation rates rise Fast food spending/capita/annum (US$) vs Urban population as % of total. Red markers denote markets where Jollibee is present
Philippines
China
Hong Kong
India
Indonesia
Japan
Malaysia
Singapore
South Korea
Thailand
Vietnam
Australia
Russia
Brazil
USA
FranceGermany
UK
0
100
200
300
400
500
600
700
30 40 50 60 70 80 90 100
Fast
foo
d s
pe
nd
ing
/cap
ita (
US
D)
Urban population as % of total
R²=0.71
Source: World Bank, Euromonitor
Jollibee well positioned in countries with high
growth potential
With 79% of outlets in the Philippines and 15% in China, Jollibee has significant exposure to countries where growth potential in the foodservice industry is the highest. Figure 47 shows historical and forward CAGR in the foodservice industry. In the past five years, China’s foodservice market size has grown the fastest at 17.4% CAGR and is projected to see 8.9% CAGR over 2012-17, which is the third highest in Asia. The Philippines is also expected to grow at an above-average CAGR of 5.3% over the next five years, although we believe growth rates could be even higher as wealth growth in the country is expected
The Philippines, China and
Vietnam have low
urbanisation rates of 49%,
47% and 30%, respectively
China foodservice to
maintain high level of
growth, but the Philippines
presents best upside
surprise potential
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 27
to be the highest in the region (Figure 49) and we expect private consumption expenditure growth to continue to exceed the NJA and ASEAN average over the next two years.
Jollibee also has 40 outlets in Vietnam (as of 3Q2013) plus its SuperFoods Group JV, where the food service industry is projected to grow at 9.4% CAGR over the next five years, the highest in the region. Further expansion in Vietnam should be a promising long-term growth driver in addition to growth in the Philippines and China.
Figure 47: Projected growth rates for the foodservice industry highest in Vietnam,
Indonesia and China Foodservice industry 5Y historical CAGR vs 5Y forward CAGR
5.7%
-2.4%
7.4%
3.4%
4.7%
6.9%
7.2%
6.2%
6.8%
17.4%
7.2%
6.1%
-3.6%
1.5%
2.3%
3.3%
4.0%
4.2%
5.0%
5.3%
7.9%
8.9%
9.0%
9.4%
Japan
South Korea
Australia
Hong Kong
Thailand
Singapore
Malaysia
Philippines
India
China
Indonesia
Vietnam
5Y forward CAGR 5Y historical CAGR
Source: Euromonitor
Fast food growth rates are expected to outpace those of the overall foodservice industry (Figure 48). This is because the former is more underpenetrated.
Figure 48: Fast food industry to grow faster than overall foodservice industry Fast food industry 5Y historical CAGR vs 5Y forward CAGR
10.6%
9.6%
10.6%
5.8%
3.5%
6.4%
13.7%
9.8%
9.1%
15.8%
17.7%
10.8%
11.5%
-1.5%
3.2%
4.5%
5.2%
5.4%
5.9%
6.1%
6.9%
8.5%
9.0%
9.3%
12.0%
14.3%
Japan
Australia
Singapore
Taiwan
South Korea
Hong Kong
Malaysia
Philippines
India
Thailand
China
Indonesia
Vietnam
5Y forward CAGR 5Y historical CAGR
Source: Euromonitor
In terms of income and urbanisation growth, Jollibee also has exposure to countries with
above-average income and urban population growth, and as higher income and
urbanisation are correlated to higher fast food spending per capita, this should drive
significant upside potential in sales over the next few years. Figure 49 shows that the
Philippines and China -- Jollibee’s biggest markets – have had the highest growth rates in
wealth per adult over the last three years. Going forward, GDP per capita growth is
expected to be the highest in Vietnam and China, which is positive for Jollibee's expansion
plans in these countries (Figure 50). Philippines’ forward GDP per capita growth is also
above average in the region at 7% p.a. The pace of urbanisation is projected to be the
fastest in Vietnam (Figure 51), where Jollibee has not only 40 Jollibee stores but also a
Jollibee has optionality in the highest growth market in the region
Fast food format trends are
stronger due to low
penetration
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 28
joint venture, showing that it is investing heavily in areas of high growth potential as it
seeks to expand regionally.
Figure 49: High wealth growth in the Philippines and
China to drive foodservice spending Wealth per adult, 2010-13 CAGR (US$)
Figure 50: Vietnam, China and the Philippines have
among the highest forward GDP per capita growth –
positive implications for Jollibee GDP per capita historical vs forward growth
-3.9%
-3.3%
-1.3%
1.4%
1.5%
1.6%
1.7%
4.4%
5.6%
5.8%
6.1%
6.9%
14.2%
India
Taiwan
Japan
Indonesia
Malaysia
Vietnam
South Korea
Thailand
Singapore
Hong Kong
Australia
China
Philippines
14%
20%
10%12%
4%
10%
16%
10%
9% 8%7% 7% 6%
4%3% 3%
7yr historical CAGR 5yr forward CAGR
Source: Credit Suisse Global Wealth Report 2013 Source: IMF
Figure 51: Urbanising populations to drive Jollibee’s store and topline growth Change in % of population urbanised, 2010-50E (%), ranked by highest to lowest change
72
50
49
44
40
30
47
34
30
88
69
69
66
63
54
73
60
59
Malaysia
World
Philippines
Indonesia
Non-Japan Asia
India
China
Thailand
Vietnam
% population urbanized 2050E % population urbanized 2010
Source: United Nations, Credit Suisse Emerging Market Research Institute
Competitive landscape
Domestic segment: Resilience at the top
Jollibee is the biggest player in the Philippine QSR industry, with a portfolio of six brands
(Jollibee, Greenwich Pizza, Red Ribbon, Chowking, Burger King and Mang Inasal) and a
market share of 58% (Figure 52). The company’s leading position domestically is a rare
success story considering that in almost every APAC country, the top two players in the
QSR industry are either McDonald’s or Yum! Brands. Management’s success at execution
and growing its portfolio has led to continued resilience in market share, with 3x the
market share of #2 McDonald’s (Figure 53). While the company has lost ~30 bp share to
Philippines is one of very
few EMs where the leader is
local rather than McDonald’s
or YUM! Brands
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 29
McDonald’s in the last two years, we are not too concerned as Jollibee’s sales and store
network remains 3.2x and 5.6x bigger than McDonald's, respectively.
Figure 52: Jollibee is the indisputable leader in the
Philippine QSR industry… Philippine QSR market share breakdown, 2012 (by value)
Figure 53: …with market share trends quite stable JFC vs key competitors 2007-2012 market share
Jollibee
Foods Corp
58.1%McDonald'
s Corp
18.4%
Yum!
Brands
4.5%
Seven & I
Holdings
2.0%
Pancake
House
1.5%
Pier One
Bar & Grill
1.1%
Other
14.4%
2012 Philippines QSR market size
USD 2.9bn
0%
10%
20%
30%
40%
50%
60%
70%
2007 2008 2009 2010 2011 2012
Jollibee Foods CorpMcDonald's CorpYum! Brands IncSeven & I Holdings Co Ltd
Source: Euromonitor Source: Euromonitor
Jollibee’s product range remains the broadest, serving not just American, Chinese and
Filipino fast food but also cakes and confectionary. Productivity also ranks high on the
scale as the company has the third highest sales/store among the top 15 QSR players—if
we only look at the Jollibee brand, sales/store would be the highest in the industry.
We believe the consistent dominance in store count, sales productivity and absolute sales
more than offset the slight drop in market share in 2012. The list below also highlights some
smaller QSR chains that are gaining share in the Philippines—Pier One Bar & Grill, Bon
Chon and Dairy Queen should be interesting chains to watch out for over the next few years.
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 30
Figure 54: Snapshot of Philippines QSR key players (ranked by market share)
Company name Key products/brands 2012
retail
sales
(US$ mn)
Number of
stores (end-
2012)
Sales/store
(US$)
2012 market
share (%)
2012 market
share
gain/(loss)
(p.p.)
1 Jollibee Foods Corp Western, Chinese and Filipino fast
food, bakery (Jollibee, Greenwich
Pizza, Chowking, Red Ribbon,
Mang Inasal, Burger King)
$1,672 2,074 $805,931 58.1% (0.3)
2 McDonald's Corp American fast food $530 370 $1,432,973 18.4% 0.6
3 Yum! Brands American fast food (KFC, Taco Bell,
Pizza Hut)
$129 386 $333,679 4.5% 0.0
4 Seven & I Holdings Western and Filipino fast food at 7-
Eleven locations
$59 829 $70,808 2.0% 0.0
5 Pancake House Inc Western and Filipino food (Pancake
House, Dencio's, Singkit, Teriyaki
Boy, Kabisera, Le Coeur de France,
Sizzlin'Pepper Steak)
$43 174 $248,851 1.5% 0.0
6 Pier One Bar & Grill Western and Filipino casual food $30 n.a. n.a. 1.1% 0.7
7 Goldilocks Bake Shop Bakery, Filipino casual food $27 365 $73,425 0.9% (0.1)
8 Wendy's American fast food $23 104 $223,077 0.8% (0.1)
9 Duskin Co Ltd Donuts under the "Mister Donut"
brand
$23 2,000 $11,350 0.8% 0.0
10 Bon Chon Inc Korean fried chicken $17 41 $417,073 0.6% 0.4
11 Sbarro Inc American Pizza $13 34 $379,412 0.4% 0.0
12 Tropical Hut Food
Market
American fast food $10 50 $204,000 0.4% (0.3)
13 Pancitng Taga Malabon Filipino casual food $10 10 $960,000 0.3% (0.1)
14 Mexicali Foods Corp Californian-Mexican fast food $10 13 $730,769 0.3% (0.1)
15 International Dairy
Queen
Ice cream $8 15 $553,333 0.3% 0.2
Source: Company data, Euromonitor, Credit Suisse estimates
China: Slow and steady march
Unlike the Philippines where a clear leader presides, the QSR industry in China is heavily
fragmented with the top ten players holding only 12.3% market share in 2012. As of 2012,
Jollibee ranked #10 in terms of market share with retail sales of US$123 mn; while the #1
player Yum! Brands has made significant share gains in the last two years. Jollibee has
slowly gained share from competitors such as Ajisen. Share gains from the bigger players
should continue as the market consolidates, and we expect Jollibee to have the scale to
expand and/or acquire smaller players and maintain its position in the top 10-15. Plus,
Jollibee is adding ~40 stores per year and targeting 25% annual growth in China.
China’s QSR industry is
much more fragmented, but
Jollibee has made steady
gains in market share in the
last two years
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 31
Figure 55: China’s QSR market is fragmented… China QSR market share breakdown, 2012 (by value)
Figure 56: …as Jollibee’s market share remains low
despite its top 10 position JFC vs key competitors 2007-12 market share
Yum!
Brands
6.5%
McDonald'
s 2.3%
Ting Hsin
Intl 1.5%Hua Lai Shi
0.6%
Ajisen
0.4%
Jollibee
Foods Corp
0.1%
Country
Style
Cooking
0.2%
Yoshinoya
0.1%
Other
88.3%
2012 China QSR
market size
USD106bn
0%
1%
2%
3%
4%
5%
6%
7%
2007 2008 2009 2010 2011 2012
Yum! Brands McDonald's
Ting Hsin Intl Ajisen
Jollibee Foods Corp
Source: Euromonitor Source: Euromonitor
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 32
Don’t be deterred by valuation Throughout this report we justify that Jollibee’s strong consumer franchise underpinned by
consistent long-term earnings growth, high and rising excess returns and financial
prowess will support valuations going forward. Barring any macro shocks to the
Philippines economy and/or negative fund flows by foreign investors, we feel multiple
contraction risk is low because the fundamental outlook is solid. This being said, there is
risk to the upside from accelerated earnings growth as a results of an Indonesian
acquisition. This is not priced in by the market, which leaves additional optionality in
addition to SuperFodds Group in Vietnam.
In determining our target price of P205, we take the average of our three approaches:
(1) Flat P/E multiple (40x 2014E EPS and 33x 2015E EPS) – P209/share
(2) Flat EV/EBITDA multiple (21x 2014E EV/EBITDA and 18x 2015E EV/EBITDA) –
P207/share
(3) DCF (8.2% WACC, 10x EBITDA terminal value, 11% FCF CAGR) – P202/share
Historical valuations not all that relevant
Relative to any historical valuation metric, Jollibee shares are currently trading at or near
all-time highs. However, this carries relatively low meaning to us because the Philippine
domestic economy is the strongest it has been in over a decade, Jollibee has the greatest
degree of scale domestically it has ever had; 20% of growth now comes from high-growth
international markets where momentum potential is strong (namely China and Vietnam),
FCF generation is strongest and visibility to earnings growth is best.
Comparison to NJA foodservice peers
The NJA foodservice peer group trades at average 2014E EV/EBITDA and 2014E P/E
multiples of 19.5x and 35x, respectively. These high valuations reflect the long-term
structural growth story in penetration, urbanisation, rising incomes/wealth and per capita
spending. Interestingly, a material dichotomy has emerged between organic growth rates
of local foodservice operators and that of multinational players. The former have
formats/concepts that resonate stronger with local consumers and arguably have greater
and long growth potential as a result. This is why valuations for local players have
expanded while those of multinationals have actually contracted.
Within the NJA foodservice landscape (Figure 57), Jollibee trades at lower multiples and
lower FCF and Dividend yields, despite being larger, greater forward ROIC expansion,
comparable margins when adjusted apples-to-apples, has higher store productivity and
generates higher returns.
Jollibee’s strong consumer
franchise will support
valuations going forward,
with upside risk from
potential acquisitions
Historical valuations do not
capture the streak of
earnings growth or scale of
Jollibee today
NJA foodservice stocks
trade at high multiples given
the structural story …
… but Jollibee trades at
lower multiples than the
peers despite greater
forward excess return
expansion and higher store
productivity
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 33
Figure 57: Jollibee head-to-head against NJA foodservice peers
JFC Tsui Wah Ajisen Jubilant Average
Symbol JFC.PS 1314.HK 0538.HK JUBI.BO
Market Cap (US$ mn) 4,175 963 1,054 1,404
6mos ADTO (US$ mn) 2.7 2.0 2.5 6.0
CS Rating OUTPERFORM OUTPERFORM OUTPERFORM UNDERPERFORM
P/E
2013E 40.1x 47.0x 28.6x 57.9x 43.4x
2014E 33.9x 35.7x 23.3x 45.3x 34.6x
2015E 27.5x 21.9x 19.8x 36.5x 26.4x
EV/EBITDA
2013E 21.1x 35.9x 13.5x 29.9x 25.1x
2014E 18.1x 26.4x 10.8x 23.4x 19.7x
2015E 15.4x 15.2x 9.2x 18.9x 14.7x
Gross margin
2013E 18.3%/54.4%* 69.4% 66.8% 73.1% 69.8%
2014E 18.7%/54.6%* 69.4% 66.4% 73.1% 69.6%
2015E 19.3%/55.1%* 69.5% 65.5% 73.1% 69.4%
EBITDA margin
2013E 10.6%/14.2%* 16.8% 15.2% 16.1% 16.0%
2014E 10.8%/13.9%* 16.2% 16.8% 16.3% 16.4%
2015E 11.2%/15.0%* 18.9% 16.7% 16.3% 17.3%
ROIC
2014E 18.75% 21.07% 9.49% 24.54% 18.46%
ROIC
3yr Fwd ROIC Change 647 bps 1,400 bps 643 bps -705 bps 496 bps
FCF Yield
2014E 1.61% -1.66% 4.50% 0.97% 1.35%
Dividend Yield
2014E 1.78% 1.12% 1.41% 0.00% 1.08%
Operating metrics
2013E Sales (USDm) 1,904 140 414 296
Sales growth (3Y Fwd CAGR) 14% 44% 12% 26% 24%
Total stores (2013E) 2,778 30 672 576
% franchised 47% 0% 0% 0%
Sales/avg store (USDm, 2013E) 0.71 5.59 0.62 0.50 1.85
EBITDA/avg store (USDm, 2013E) 0.08 0.94 0.09 0.09 0.30
Avg check size (USD) 3.72 30.54 6.90 n/a
*comparable gross margin: adjusted COGS (only incl. cost of inventories) and excluding commisary sales to franchises Note: Priced as of Dec 5 2013
Source: Company data, Credit Suisse estimates
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 34
Investment risks The company’s business involves a number of risks, some of which are listed below:
Macroeconomic
As 80% of Jollibee’s system-wide sales and revenues come from the Philippines, its
business is significantly influenced by the economic, political and social environment in the
country. Our model assumes that domestic system-wide sales will grow at 13% p.a. over
the next three years, driven by real private consumption growth of 6% p.a. Our economist
also forecasts CPI inflation to increase 3-4% per year. Any adverse change in the
Philippines’ economic condition could affect consumer sentiment, purchasing power and
spending patterns and have a negative impact on consumer demand for Jollibee’s
products and lead to downside risks in our revenue and earnings estimates.
Foreign currency exchange
Jollibee has significant foreign currency exchange risks as 20% of its revenues are from
abroad (primarily China, US and Vietnam), and FX exposure is expected to increase as
revenue growth from its international operations accelerates. As the company’s reporting
currency is the Philippines Peso, any significant change in the RMB, USD, or VND is likely
to change the company’s cost and revenue structures, leading to both upside and
downside risks to our earnings estimates.
Acquisition
The company has made significant acquisitions and joint ventures in the past 3-4 years,
and we expect acquisitions to continue as Jollibee seeks to expand both its brand portfolio
and its regional presence. Therefore there are risks relating to any potential acquisition
activity—risk of capital raising to fund investments, execution risk, and risk of overpaying
for acquisition targets.
Natural disaster
As a country prone to multiple typhoons a year, the Philippines faces significant natural
disaster risks, and Jollibee’s national presence is prone to business disruption.
Management stated that the overall impact of Typhoon Yolanda on 4Q13 results was
estimated to be manageable, as property damage sustained on company-owned stores
was insignificant and was covered by insurance. As of 13 November 2013, 23 stores
mostly in Leyte and Samar remained closed due to property damage and disruption of
product supply. While these stores represent only 1.1% of the JFC Group’s total store
network in the Philippines, management remains uncertain when the stores will re-open.
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 35
Companies Mentioned (Price as of 05-Dec-2013)
Ajisen (0538.HK, HK$7.5) Alliance Global Group Inc (AGI.PS, P24.3) Belle Corporation (BEL.PS, P5.27) Bloomberry Resorts Corporation (BLOOM.PS, P9.87) Cafe De Coral (0341.HK, HK$25.55) Central Plaza Hotel PCL (CENT.BK, Bt36.0) Chipotle Mexican (CMG.N, $518.11) Colgate-Palmolive India (COLG.BO, Rs1259.4) Dominos Pizza (DPZ.N, $68.71) ITC Ltd (ITC.BO, Rs308.9) Jollibee Foods Corporation (JFC.PS, P174.0, OUTPERFORM, TP P205.0) Jubilant Foodworks (JUBI.BO, Rs1363.65) McDonald's Corp (MCD.N, $95.71) Minor International PCL (MINT.BK, Bt24.0) Mitra Adiperkasa (MAPI.JK, Rp5,350) Nestle (NESN.VX, SFr64.5) Nestle India (NEST.BO, Rs5077.5) PepsiCo, Inc. (PEP.N, $82.65) Procter & Gamble Co. (PG.N, $83.35) Puregold Price Club, Inc (PGOLD.PS, P41.6) Seven & i Holdings (3382.T, ¥3,740) Starbucks (SBUX.OQ, $79.5) The Wendy's Company (WEN.OQ, $8.54) Tsui Wah Holding (1314.HK, HK$5.4) Universal Robina Corp. (URC.PS, P119.1) Wal-Mart Stores, Inc. (WMT.N, $80.22) Yum! Brands, Inc. (YUM.N, $75.66)
Disclosure Appendix
Important Global Disclosures
I, Karim P. Salamatian, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the les s attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s cove rage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 36
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. A n analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (54% banking clients)
Neutral/Hold* 41% (49% banking clients)
Underperform/Sell* 15% (41% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative bas is. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
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Price Target: (12 months) for Jollibee Foods Corporation (JFC.PS)
Method: Our 12-month target price of PHP205 for Jollibee Foods Corporation is based on the average of: (1) P/E (price-to-earnings) multiple (40x 2014E EPS and 33x 2015E EPS) of PHP209/share; (2) EV/EBITDA (enterprise value-to-earnings before interest, depreciation and amortisation) multiple (21x 2014E EV/EBITDA and 18x 2015E EV/EBITDA) of PHP207/share and (3) DCF (discounted cash flow) value of PHP202/share (8.2% WACC, 10x EBITDA terminal value, 11% FCF CAGR)
Risk: Risks that could impede achievement of our target price of PHP205 for Jollibee Foods Corporation include: macroeconomic risks that would have a negative impact on consumer demand, foreign currency exchange risk (20% of JFC's revenues are from abroad), acquisition risk, and natural disaster risks.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (CMG.N, MCD.N, NESN.VX, PG.N, PEP.N, WMT.N, URC.PS, BEL.PS, MINT.BK, MAPI.JK, 3382.T, NEST.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (CMG.N, MCD.N, NESN.VX, PG.N, WMT.N, URC.PS, MINT.BK, NEST.BO) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (MCD.N, NESN.VX, PG.N, PEP.N, WMT.N) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (NESN.VX, PG.N, WMT.N, URC.PS, NEST.BO) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (CMG.N, MCD.N, NESN.VX, PG.N, WMT.N, URC.PS, MINT.BK, NEST.BO) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (0538.HK, CMG.N, MCD.N, YUM.N, NESN.VX, PG.N, PEP.N, WMT.N, SBUX.OQ, URC.PS, BEL.PS, MINT.BK, MAPI.JK, 3382.T, NEST.BO, COLG.BO) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (MCD.N, NESN.VX, PG.N, PEP.N, WMT.N) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (CMG.N, MCD.N, WEN.OQ, YUM.N, PG.N, PEP.N, WMT.N, SBUX.OQ).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (JUBI.BO, NESN.VX).
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PG.N). An analyst or a member of the analyst's household has a long position in the common stock of (PG).
06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 37
As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PEP.N). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of PEP.N
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (JFC.PS, JUBI.BO, 1314.HK, 0538.HK, CMG.N, MCD.N, WEN.OQ, YUM.N, NESN.VX, PG.N, PG.N, PEP.N, WMT.N, SBUX.OQ, URC.PS, BLOOM.PS, BEL.PS, AGI.PS, PGOLD.PS, MINT.BK, MAPI.JK, 3382.T, ITC.BO, NEST.BO, COLG.BO) within the past 12 months
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The following disclosed European company/ies have estimates that comply with IFRS: (NESN.VX).
Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (MCD.N, NESN.VX, PG.N, WMT.N, URC.PS, NEST.BO) within the past 3 years.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
For Thai listed companies mentioned in this report, the independent 2013 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Central Plaza Hotel PCL (Very Good) , Minor International PCL (Excellent)
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse (Hong Kong) Limited ...................................................................................................... Karim P. Salamatian, CFA ; Rebecca Kwee
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06 December 2013
Jollibee Foods Corporation
(JFC.PS / JFC PM) 38
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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
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