Equity Research Report Jollibee Foods Corp. 24th April 2019 Murtaza Salman Abedin Anirudh Ganeriwala Harsharan Singh Muhammad Salik Raymond Widjaja Tang Man Chung Tommy Fang Yucheng Published By CityU Student Research & Investment Club THE FINAL PAGE OF THIS REPORT CONTAINS A DETAILED DISCLAIMER The content and opinions in this report are written by university students from the CityU Student Research & Investment Club, and thus are for reference only. Investors are fully responsible for their investment decisions. CityU Student Research & Investment Club is not responsible for any direct or indirect loss resulting from investments referenced to this report. The opinions in this report constitute the opinion of the CityU Student Research & Investment Club and do not constitute the opinion of the City University of Hong Kong nor any governing or student body or department under the University. 24 April 2019 Asia Pacific/Philippines Equity Research Restaurants Rating OUTPERFORM Price (22 April 19, PHP) 304.00 Target price (PHP) % up from Price on April, 22: 18.58% 360.49 Market cap. (PHP, m) 333,621 Enterprise Value (PHP m) 337,271.4 Jollibee Foods Corporation (JFC:PM) Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. Target price is for 12 months. Research Analysts: Jollibee Foods Corporation (JFC) is an Asian food service multinational company which owns and operates a large number of Quick Service Murtaza Salman Abedin +852 59858568 Restaurants (QSRs). The company is listed on the Philippines Stock [email protected] Exchange and has a market capitalization of PHP347.57 Billion (USD Anirudh Ganeriwala 6.72 Billion) and a revenue of PHP126.2 Billion (USD 2.43 Billion) as [email protected] of 2017. There are three major sources of revenue for the corporation Muhammad Salik namely: food servicing, franchising and leasing. [email protected] Harsharan Singh JFC has a number of subsidiaries developing, operating and franchising [email protected] QSRs under different trade names. They also have subsidiaries and Raymond Widjaja affiliates which develop and operate its international brands inlcuding [email protected] Yonghe King, Hong Zhuang Yuan, San Pin Wang, and brands under Fang YuCheng [email protected] SuperFoods Group like Highlands Coffee and Pho 24. Tang Man Chung Tommy [email protected] JFC headquarters is located in Pasig, Philippines. The top five shareholders of the firm are Hyper Dynamic Corp (25.11%), Honeysea Corp (11.74%), Winall Holding Corp (4.98%), OppenheimerFunds Inc (4.03%) and Honeyworth Corp. (3.7%.) Share price performance Figure 1 Figure2 TABLE OF CONTENTS JOLLIBEE FOODS CORPORATION (JFC:PM) .......................................................................................... 3 COMPANY OVERVIEW ...................................................................................................................................... 5 BRAND ANALYSIS............................................................................................................................................................ 5 GROWTH ANALYSIS......................................................................................................................................................... 7 REGIONAL ANALYSIS ....................................................................................................................................................... 7 Asia – Pacific ......................................................................................................................................................... 8 North America and the Middle East ..................................................................................................................... 9 SMASHBURGER ACQUISITION......................................................................................................................... 11 FUTURE PLANS ............................................................................................................................................... 11 VALUATION ................................................................................................................................................... 12 INVESTMENT RISKS ........................................................................................................................................ 13 APPENDIX ...................................................................................................................................................... 14 COMPANY OVERVIEW Brand Analysis The following brands are owned by Jollibee Foods Corporation: No. of Restaurants Growth Rate in branch Name of Brand 2015 2016 2017 numbers in 2017 Jollibee 1055 1145 1260 10.0% Greenwich 231 250 272 8.8% Chowking 484 521 571 9.6% Red Ribbon 406 430 458 6.5% Yonghe king 321 310 309 -0.3% Hong Zhuang 42 43 43 0.0% Mang Insal 460 465 495 6.5% Burger King 56 75 93 24.0% Dunkin Doughnuts 0 15 15 0.0% Jinja Bar 3 0 0 - San Pin Wang 59 0 0 - Highlands Coffee 0 0 244 100.0% PHO24 0 0 29 100.0% Hard Rock Café 0 0 8 100.0% Figure 5 Jollibee Jollibee established itself in 1978, following which, it expanded its operations both domestically and internationally. It currently dominates the QSR industry in Philippines and has achieved double digit revenue growth between 2017 and 2018. The brand has opened 95 new stores in the Philippines in 2017, raising its total store count to 1,062 (in Philippines.) Greenwich JFC acquired Greenwich in 1994. The focused growth approach implemented by JFC resulted in a total of 272 Pizzeria stores which increased its sales by over 11%. Chowking Chowking is one of the most successful brands under JFC, which was acquired in 2000. It expanded to other parts of the world like the USA and the Middle East. It is one of the fastest- growing QSR brands in the young market segment. Worldwide, there are 571 stores of the brand. Copyright © CityU Student Research & Investment Club 5 Red Ribbon JFC acquired Red Ribbon in 2005. In 2017, their sales grew by approximately 13.5% (YOY). The brand has attained consistent double-digit revenue growth for the last five years. As of Dec 2017, Red Ribbon has 458 stores in total. Yonghe King In 2004, JFC acquired its first foreign brand in China: Yonghe King. In 2017, the sales of this particular brand grew by 16.8% (YOY) and through such performance, JFC was able to increase competition in the market. This is reflected by the fact that Yonghe King was acknowledged as the best QSR in China for two consecutive years. By 2017 the total store count for Yonghe King had increased to 309. Hong Zhuang JFC acquired Hong Zhuang in 2008. One of the main drivers of the brand’s sales growth is the provision of efficient delivery; Hong Zhuang was presented with the “2017 Remarkable Delivery Brand” award. Such performance helped the brand increase its store tally by the end of 2017 to 43. Mang Inasal JFC acquired Mang Inasal in April 2016. By April 2017, its sales grew by 15.2%(YOY). This growth stemmed from the rising demand of its flagship products and unique strategy which offers unilimited rice and soup and use of coal instead of electricity. 64 new stores were opened for this brand raising the total store count to 495. Burger King JFC has acquired a 54% stake in Burger King operations in the Philippines, a quick service restaurant with a total of 93 restaurants in 2017. Dunkin Doughnuts JFC bought the China Franchise of Dunkin Donuts. As of Dec 2017, there are 15 Dunkin Donuts stores in China. JFC owns a 60% stake and aims to open a minimum of 1959 stores in China within the next 20 years. Jinja Bar JFC decided to exit Jinja Bar for USD1.6 million in Dec, 2016. Initially, Jinja Bar had six restaurants out of which 3 were located in New Mexico. Highlands COFFEE An agreement with Viet Thai International Joint Stock Co. stated that JFC will own 60% of the franchise that operates Highlands Coffee in Vietnam. As of Dec 2017, there are 249 stores. Highlands Coffee is planning for an IPO in Vietnam by 2019. Copyright © CityU Student Research & Investment Club 6 PHO24 Pho 24 is a Vietnamese noodle house and was introduced in the Philippines in 2018 by JFC Fresh N'Famous Foods Inc. Pho 24 also operates in Indonesia, Vietnam, Japan and Cambodia. The group plans to build a brand of high quality and healthy Vietnamese food through Pho 24. Hard Rock Cafe JFC currently owns a 50% stake in Hard Rock Cafe franchise stores in Vietnam, Macau and Hong Kong. Growth Analysis During the year 2018, JFC invested USD186 million in capital expenditure. Most of the expenditure was in opening new stores and renovation of existing stores as a result of which the total store count increased by 19.1%. The Jollibee Foods Corporation opened 317 stores in the Philippines and 185 stores abroad. They re-entered Malaysia and established themselves in 3 other countries namely Italy, Macau and the UK. The group's worldwide store network reached 4,521 stores. The company has continuously been making an effort to expand in North America and the EMEA (Europe, Middle East and Africa) region. However, they have not made a public announcement regarding the companies they will invest in. They aim to open 150 new stores in Canada by the end of 2019. In December 2018, the group purchased an additional 15% stake in Smashburger, raising its ownership stake to 100%. It also bought a 47% stake in a Mexican restaurant chain, Tortas Frontera.