WE D 16 N O V 2016

JOLLIBEE FOODS CORPORATION:

9M16 results disappoint on higher-than-expected

operating expenses
Results disappoint on higher-than-expected operating expenses. JFC registered profits of
Php4.4Bil in 9M16, up 13.8% y/y. Although 9M16 profits were in line with expectations at 70.2% of
our full year forecast, this was only because of the lower-than-expected effective tax rate at 17.6%
compared to the 20.3% a year ago. Revenues were up 12.8% y/y to Php82.2Bil and were in line
COL and consensus estimates at 72.6% and 72.8%, respectively. However, the strong performance
of revenues was offset by the higher-than-expected operating expenses which grew by 21% y/y to
Php10.2Bil. The figure already accounted for 74.1% of our full year forecast. Note that operating
expenses in the first nine months of 2014 and 2015 accounted for only 70.9% and 67.0% of full
year total, respectively. This brought 9M16 operating income to Php4.9Bil, up by only 11.4%,
underperforming both COL and consensus forecast. In fact, 3Q16 operating profits were down 6.7%
to only Php1.4Bil.
Operating expenses continue to exceed expectations. Although we already anticipated an
increase, the actual increase in JFCs operating expenses continued to exceed our expectations.
JFCs operating expenses jumped by 17.1% to Php2.8Bil during 3Q16. This brought 9M16 operating
expenses higher by 21% to Php10.2Bil. The said figure already accounts for 74.1% of our full year
forecast. Note that operating expenses during the first nine months of 2014 and 2015 accounted
for only 70.9% and 67.0% of full year total, respectively. JFC attributed the increase in operating
expenses to higher average headcount per domestic store in line with its efforts to improve customer
service. JFCs decision to outsource its IT requirements to IBM also pushed up its costs. Total
personnel costs, professional fees and contracted services increased by 25.0% to Php5.1Bil during
the first nine months of 2016.
Reiterate HOLD rating. We reiterate our HOLD rating on JFC with a FV estimate of Php204/
sh. Although we like JFC fundamentally given its dominant position in the domestic quick service
restaurant industry as well as for the improving profitability of its international business, valuations
are unattractive. At its current price of Php208/sh, JFC it is trading at 32.0X 2017E P/E and above
our FV estimate.
FORECAST SUMMARY:
Year to December 31 (Php Mil)
Revenues
% change y/y
Gross Profit
%change y/y
Gross Profit Margin (%)
Operating Income
%change y/y
Operating Margin (%)
Net Income
%change y/y
Net Margin (%)
EPS (in Php)
%change y/y
RELATIVE VALUE
P/E(X)
P/BV(X)
ROE(%)
Dividend Yield (%)

2013
80,283
13.0
14,998
18.8
18.7
5,931
36.5
7.4
4,672
25.3
5.8
4.36
24.1

2014
90,671
12.9
16,943
13.0
18.7
6,137
3.5
6.8
5,362
14.8
5.9
4.96
13.6

2015
100,780
11.1
17,888
5.6
17.7
5,355
-12.7
5.3
4,929
-8.1
4.9
4.53
-8.6

2016E
113,285
12.4
21,184
18.4
18.7
7,477
39.6
6.6
6,249
26.8
5.5
5.79
27.8

2017E
125,264
10.6
23,550
11.2
18.8
8,393
12.2
6.7
7,024
12.4
5.6
6.50
12.4

47.7
9.9
21.5
2.4

42.0
8.2
21.6
0.7

45.9
7.4
17.0
0.8

36.0
6.4
19.0
0.8

32.0
5.7
18.7
1.0

SHARE DATA

HOLD

Rating
Ticker

JFC

Fair Value (Php)

204.00

Current Price

214.40

Upside (%)

-4.85

SHARE PRICE MOVEMENT

110

100

90

80
16-Aug-16

16-Sep-16
JFC

16-Oct-16

16-Nov-16

PSEi

ABSOLUTE PERFORMANCE
1M

3M

YTD

JFC

-11.04

-15.26

-2.10

PSEi

-5.77

-12.79

0.15

MARKET DATA
Market Cap
Outstanding Shares
52 Wk Range
3Mo Ave Daily T/O

230,493.41Mil
1,075.06Mil
191.00 - 260.00
128.07Mil

Andy Dela Cruz Analyst

andy.delacruz@colfinancial.com

*So urce: JFC, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.

E ar n i n g s A n al ysi s I Jo l l i b ee Foods C or por ati on

WED 16 NOV 2016

Results disappoint on higher-than-expected operating expenses

JFC registered profits of Php4.4Bil in 9M16, up 13.8% y/y. Although 9M16 profits were in line with
expectations at 70.2% of our full year forecast, this was only because of the lower-than-expected
effective tax rate at 17.6% compared to the 20.3% a year ago. Revenues were up 12.8% y/y to
Php82.2Bil and were in line COL and consensus estimates at 72.6% and 72.8%, respectively.
However, the strong performance of revenues was offset by the higher-than-expected operating
expenses which grew by 21% y/y to Php10.2Bil. The figure already accounted for 74.1% of our full
year forecast. Note that operating expenses in the first nine months of 2014 and 2015 accounted
for only 70.9% and 67.0% of full year total, respectively. This brought 9M16 operating income to
Php4.9Bil, up by only 11.4%, underperforming both COL and consensus forecast. In fact, 3Q16
operating profits were down 6.7% to only Php1.4Bil.
Exhibit 1: Results Summary
in PhpMil
Revenues
Gross Profit
Gross Margin (%)
Operating Income
Operating Margin (%)
Net Income
Net Margin (%)

3Q15

3Q16

% Change

9M15

9M16

% Change

25,052
4,519
18.0
1,493
6.0
1,258
5.0

27,816
4,972
17.9
1,393
5.0
1,335
4.8

11.0
10.0
(6.7)
6.1
-

72,908
12,808
17.6
4,413
6.1
3,858
5.3

82,241
15,078
18.3
4,916
6.0
4,389
5.3

12.8
17.7
11.4
13.8
-

% of Forecast
COL
Consensus
72.6
72.8
71.2
70.8
65.8
66.0
70.2
69.5
-

Source: JFC, COL Estimates, Bloomberg

Strong revenue growth and gross margin expansion sustained

JFCs 9M16 revenues grew by 12.8% to Php82.2Bil driven by the 6% growth in same store sales
as well as the 6.4% contribution of new stores. Revenues from domestic operations grew by 15.8%
to around Php65.0Bil as domestic sales experienced a 14.1% growth in 3Q16. On the other hand,
international revenues grew by only3.1% to Php17.5Bil due to the continuous weakness in its
Chinese operations. On the positive side, growth of its international business improved relative to
previous quarters and JFC remains hopeful that the momentum will continue.
Gross margins for 9M16 also improved to 18.3% from 17.3% from the same period last year. JFC
attributed the improvement to the same stores sales growth of 6%, as well as the stable input costs
over the period.

Operating expenses continue to exceed expectations

Although we already anticipated an increase, the actual increase in JFCs operating expenses
continued to exceed our expectations. JFCs operating expenses jumped by 17.1% to Php2.8Bil
during 3Q16. This brought 9M16 operating expenses higher by 21% to Php10.2Bil. The said figure
already accounts for 74.1% of our full year forecast. Note that operating expenses during the first
nine months of 2014 and 2015 accounted for only 70.9% and 67.0% of full year total, respectively.
JFC attributed the increase in operating expenses to higher average headcount per domestic store
in line with its efforts to improve customer service. JFCs decision to outsource its IT requirements
to IBM also pushed up its costs. Total personnel costs, professional fees and contracted services
increased by 25.0% to Php5.1Bil during the first nine months of 2016.
Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside
of the COL Financial website as these may be subject to tampering or unauthorized alterations.

E ar n i n g s A n al ysi s I Jo l l i b ee Foods C or por ati on

W ED 16 NOV 2016

Smash Burger improving due to network expansion

On the positive side, Smash Burgers operations are starting to see growth as it added 11 new
stores (net of closures) in 3Q16. The Smash Burger JVs equity in net loss increased marginally by
only Php1.6Mil to Php198.4Mil in 9M16 from Php196.8Mil in 1H16, increasing our confidence that
the burger chain will meet JFCs target to breakeven by end-2017.

Reiterate HOLD rating

We reiterate our HOLD rating on JFC with a FV estimate of Php204/sh. Although we like JFC
fundamentally given its dominant position in the domestic quick service restaurant industry as
well as for the improving profitability of its international business, valuations are unattractive. At
its current price of Php208/sh, JFC it is trading at 32.0X 2017E P/E and above our FV estimate.

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside
of the COL Financial website as these may be subject to tampering or unauthorized alterations.

E ar n i n g s A n al ysi s I Jo l l i b ee Foods C or por ati on

WED 16 NOV 2016

Important Rating Definitions

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.
HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

Important Disclaimer
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount
invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said
information may be incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the
report and are subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase
or sale of a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the
companies mentioned in this report and may trade them in ways different from those discussed in this report.

COL Research Team

April Lynn Tan, CFA
VP & Head of Research
april.tan@colfinancial.com
Charles William Ang, CFA
George Ching
Richard Laeda, CFA
Deputy Head of Research
Senior Research Manager
Senior Research Manager
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com
Frances Rolfa Nicolas
Andy Dela Cruz
Justin Richmond Cheng
Research Analyst Research Analyst Research Analyst
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com
Kyle Velasco
Research Analyst
kyle.velasco@colfinancial.com

Contact
COL Financial Group, Inc.
2402-D East Tower, Philippine Stock Exchange Centre,
Exchange Road, Ortigas Center, Pasig City
1605 Philippines
Tel No. +632 636-5411
Fax No. +632 635-4632
Website: www.colfinancial.com

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside
of the COL Financial website as these may be subject to tampering or unauthorized alterations.