Jollibee Sees Higher-Income Customers on Inflation (Update1)
By Francisco Alcuaz Jr. and Frank Longid
http://www.bloomberg.com/apps/news?pid= ... refer=home
July 8 (Bloomberg) -- Jollibee Foods Corp. Chairman Tony Tan Caktiong said the fastest inflation in 14 years is making more higher-income customers try the Philippines' biggest fast- food chain even as lower-wage clients cut back on visits.
``Our field people joke that the clientele now are all in barong,'' the formal Filipino shirt, Tan said in an interview in Manila yesterday. ``I've started to get comments from my friends: this product is good, this needs improvement. You don't hear these comments during good times. The higher segment is coming down.''
Jollibee, which outsells McDonald's Corp. in the Philippines, will expand its new lower-priced restaurant unit that appeals to Filipinos made poorer as oil and rice costs boosted inflation to 11.4 percent in June. The Philippines imports almost all its oil and is the world's biggest importer of rice.
``Inflation affects Jollibee more on the cost side than the demand side,'' Jojo Gonzales, head of research at Philippine Equity Partners Inc. in Manila, said in a phone interview today. ``Some people are slipping into their market. Some are falling downmarket but they hope not to lose those by offering more value meals and Manong Pepe,'' the lower-priced chain Jollibee started last year.
Chowking, Yonghe King
The company has several fast-food brands, including Jollibee, Chowking and Red Ribbon, also present in the U.S., Dubai and Indonesia. Tan has also led the acquisition of restaurant chains overseas, including Beijing-based Hongzhuangyuan and Shanghai- based Yonghe King.
Jollibee rose 1.5 percent to 34 pesos at 10:49 a.m. in Manila trading, trimming this year's loss to 35 percent. The benchmark Philippine Stock Exchange Index gained 2 percent today.
Quickening inflation prompted the government to cut its economic growth estimate half a percentage point in May to a range of 5.7 percent to 6.5 percent. The economy expanded 7.2 percent last year, the fastest in 30 years. Price increases will accelerate further in the third quarter, central bank Governor Amando Tetangco said July 4.
Jollibee's sales growth will slow from last year's 13 percent because of oil and rice prices, Chief Financial Officer Ysmael Baysa said June 27. The company is raising prices as much as 2 percent every two months, which won't ``shock consumers,'' Baysa said. It's cutting costs by using electric fans and energy-saving devices to reduce power consumption.
The company will probably scale back its plan to almost triple capital spending to 6 billion pesos ($131 million) this year from 2.06 billion pesos last year, Tan said. It will probably delay its plan to expand three commissaries.
``Two-thousand-and-seven was a very good economic recovery,'' Baysa said. ``Based on that recovery we would run out of production capacity sooner than we expected so we tried to accelerate'' expansion. ``Now volume is not as strong again so in a way we're going back to the original plan,'' he said.
To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net
Jollibee Foods Corp. (JFC)
PEP:
· JOLLIBEE Foods Corp. chairman Tony Tan Caktiong said the fastest inflation in 14 years is making more higher-income customers try the country’s biggest fast-food chain even as lower-wage clients cut back on visits. “The higher segment is coming down.” To capture consumers falling down-market, JFC has placed it economy brand Manong Pepe Karinderia (MPK) on track for store expansion this year from 3 to 12. MPK’s sells meals for less than US$0.90. Data show that an average Filipino customer will visit a JFC outlet at least 3x a month. MPK customers visit….daily.
Disclosures
Jollibee Foods Corporation (JFC) Acquisition of Chow Fun Holdings, LLC by wholly-owned subsidiary 28-Jul-2008 Disclosure No:5275-2008 http://www.pse.com.ph/html/disclosure/p ... 75_JFC.pdf
Macquarie:
(JFC PM, P44.50, Neutral) Event - We met with JFC to discuss first half results and outlook going forward. The company posted 12.4% YoY growth in revenues to P20.8bn, while net operating income decreased -7.2% YoY to P1.6bn due to higher cost of key inputs like wages and raw materials. Key Takeaways - Contrary to sentiment and expectations, management believes 2008 may be one of the company's better years in terms of top line growth. With the high revenue base set during last election year coupled with slower GDP growth and 16-yr high inflation seen this year, same store sales in 3Q08 still likely posted high single-digit growth. Management's guidance for revenue growth in the 3rd quarter is slower but still modest. They expect 8-9% growth YoY across all stores during a quarter that is typically weaker due to school enrollment and the typhoon season. Meanwhile, operating margins are expected to slowly improve starting 3Q08 as cost inflation eases and the company continuous to hike prices over time. Prices been increased 7-8% YTD so far. - Management attributed JFC's stronger than expected performance to the 18% growth in OFW remittances. Coupled with 8% peso depreciation YTD, this translates to a 26% increase in real OFW income. Management also cited a 4-5% increase in agricultural output as a possible contributor. - Meanwhile, JFC will increase its focus on foreign operations and expects that it could open more stores abroad than locally by next year. Its recently approved US$100m loan swap will be used for store expansion and commissary facilities in China. Capex budget for 2008 is P4.4bn, twice the amount spent in 2007 due to the higher spending program abroad. About 13% of sales now come from abroad, with JFC targeting a 50-50 split by 2014. Foreign sales remain robust particularly in China. Foreign system wide sales in 2Q08 grew 17% YoY on a FX adjusted basis. - The consolidation of newly acquired HongZhuangYuan (36 stores) into JFC's books in 2H08 will add to JFC's bottom line. For Yonghe King, 26 new stores have been opened YTD with a target of 30-40 stores this year and another 10 next year. - In the local front, the company expects steady pace in store openings across the board. The company is particularly optimistic about its Manong Pepe brand launched last year which caters to the low-income mass market. It now operates 5 stores (3 new openings YTD) and targets a total of 10 by year-end. JFC sees a huge potential market yet to be penetrated in the C-D space. It plans to expand Manong Pepe through a low cost franchise-based model. - For its flagship Jollibee franchise, the company estimates that Jollibee is currently present in only 180 out of an estimated 300 potential municipalities in the Philippines, showing that there is still a large untapped market outside NCR. Outlook / Recommendation - Despite the better than expected performance of the company we find the valuation very steep as it trades at 19.1x 08PER versus zero growth this year. We maintain our Neutral rating.
Philstar.com - Saturday, October 4
Fast food giant Jollibee Foods Corp. and Liwayway Marketing Corp., owner of the Oishi brand of snack foods, are making an expansion push in Vietnam in a bid to capture a bigger market share in the region. ... Jollibee Vietnam Co. Ltd. country head Jojo Subido said the company is embarking on a 10-branch expansion plan outside Ho Chi Minh City (formerly Saigon) to add to the present 10 stores, eight of which are company owned. Subido said that the 11th Jollibee store in Vietnam will open this month at Bien Hoa City, Dona Nai province, the first store outside Ho Chi Minh City. http://ph.news.yahoo.com/star/20081004/ ... c9746.html
Chart Update on Jollibee (JFC)
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Jollibee Drops Most in 8 Days as Beef Price May Squeeze Margins
2008-11-06 03:45:02.181 GMT By Ian C. Sayson Nov. 6 (Bloomberg) -- Jollibee Foods Corp. slumped the most in eight days in Manila trading on speculation rising cost of beef will squeeze margins at the biggest Philippine hamburger chain after cattle futures climbed to a one-month high. Jollibee sank 5.7 percent to 41.50 peso as of 11:07 a.m. in Manila, heading for its biggest loss since Oct. 27. Jollibee was among the four leading losers on the Philippine Stock Exchange Index, which had declined 3.2 percent. Cattle futures rose for an eighth day yesterday, adding 0.5 percent to 94.275 cents a pound in Chicago, its highest close since Oct. 9. Jollibee, which outsells McDonalds Corp. in the Philippines, imports beef for its hamburgers. ``Beef is one of the key cost items for Jollibee,'' said James Lago, head of research at PCCI Securities Brokers Corp. in Manila. ``The weakening peso also works against Jollibee which sources beef overseas.'' The Philippine peso weakened 0.9 percent to 48.485 against the dollar earlier today after strengthening 1.8 percent in the past three days. The currency has lost 17 percent against the dollar so far this year.
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