Investment in Tim Ho Wan brand drives Jollibee’s stock price

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Outlier

By Mark T. Amoguis Senior Researcher

NEWS on Jollibee Foods Corp.’s increased investment in the owner of the Asia Pacific master franchise for Tim Ho Wan drove market activity for the former’s stock last week.

A total of 3.251 million Jollibee shares worth P714.269 million exchanged hands from Sept. 30 to Oct. 4, making it the 13th most actively traded issue in the local bourse, data from the Philippine Stock Exchange showed.

Jollibee’s share price remain unchanged at P220.20 apiece last Friday from its Sept. 27 finish. For the year, however, its share price was down 24.8%.

“We think that its recent disclosure of increasing investment in [Titan Dining LP] contributed to Jollibee’s stock performance, in addition to the slower inflation rate since Jollibee is one of the consumer stocks that would benefit on higher spending,” Philstocks Financial, Inc. research associate Claire T. Alviar said in an e-mail.




AP Securities, Inc. research analyst Rachelle C. Cruz noted that following the negative feedback from the acquisition of The Coffee Bea & Tea Leaf (CBTL), the stock has been trading sideways since then.

“People are expecting if they (Jollibee) deliver the numbers, which they said that they will turnaround CBTL by next year, then that would be the catalyst for the price to go up again,” she said in a phone interview last Friday.

To recall, Jollibee bought the California-based CBTL for $350 million last July. According to the company, the CBTL brand will be the second largest business after the Jollibee brand, while the coffee business will contribute 14% to Jollibee’s worldwide system sales.

The transaction was completed last Sept. 24 after securing government approvals from the United States.

This was the company’s largest acquisition to date after it took over American fast-food chain Smashburger for $210 million last year.

However, market watchers had said that CBTL acquisition could pose a risk to Jollibee’s operating income as the coffee chain has been in the red in the recent years. It plans to turn around the loss-making CBTL to profit in the next 12 to 18 months.

Moreover, Jollibee announced last Wednesday that it will be hiking its investment in the private equity fund Titan Dining LP — the Asia-Pacific master franchise holder of Tim Ho Wan restaurants — by 120 million Singaporean dollars (S$), or equivalent to P4.5 billion.

This will increase the fund’s size to S$200 million from S$100 million. Jollibee now accounts for 60% of the fund from 45% previously.

According to the deal’s agreement, Titan’s fund’s term will end after seven years, after which Jollibee will be eligible to buy substantial ownership in Tim Ho Wan Pte. Ltd. It will be franchising the brand in Shanghai to prepare for the transition.

Established in Hong Kong in 2009 and known for its affordable food choices, dim sum restaurant Tim Ho Wan was awarded a Michelin star in 2015.

The brand will complement Jollibee’s three Chinese cuisine stores, namely Chowking, Yonghe King, and Hong Zhuang Yuan.

AP Securities, Inc.’s Ms. Cruz said that while there’s not much movement in Jollibee’s share price following the news on its investment on the Tim Ho Wan franchise, investors would still want to confirm whether or not Jollibee can “turn around its recent acquisitions.”

Philstocks’ Ms. Alviar noted that in the first half of 2019, Titan incurred losses of P50.12 million, 45% of which weighed on Jollibee group’s equity in net earnings of joint ventures (JV) and associates.

“If Titan continues to report losses, then it may somewhat reduce Jollibee’s earnings from JV and associates… [b]ut the decision… to increase investment would support its objective to further grow internationally and good for the long term, especially if Titan is able to generate income,” Ms. Alviar said.

In the April to June period, Jollibee’s attributable net income dropped by 50.2% to P1.12 billion hindered by losses recorded by Smashburger as well as lower sales from Red Ribbon.

This brought the attributable profit in the first semester to P2.66 billion, 34.4% lower than the P4.05 billion in last year’s comparable six months.

“We forecast Jollibee’s 2019 net income at P6.420 billion considering the possible losses it may incur from CBTL and Smashburger, but it may be boosted by the domestic income given the slowing inflation in the Philippines,” Philstocks’ Ms. Alviar said.

Inflation decelerated to 0.9% in September, the slowest in more than three years. This brought year-to-date inflation to average 2.8% in the nine months to September, against the central bank’s 2-4% target range and the downward-adjusted 2.5% forecast average for the entire 2019.

AP Securities’ Ms. Cruz expects Jollibee to continue trading sideways this week. She sees the stock to trade with support and resistance prices of P217 and P230, respectively.

For Philstocks’ Ms. Alviar: “It may continue to move sideways given the slower inflation rate, while some investors are still concerned over the profit/loss contribution of CBTL and Smashburger.”

“Support is around P217 to P220 while resistance is around P238 to P240. If it breaks P217, P210 is the second support,” she added.

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