FREE Stock in Focus: Jollibee Foods Corp. (JFC) – 14 Sept 2023 by AP Securities

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Summary of Broker’s Recommendation

Good bargain for investors. With the recent decline in price, we note that the buying window for interested JFC investors is now wider than it has been in weeks. While at first glance, its blended forward Price-to-Earnings (P/E) ratio of 29.0x still appears fairly close to its peer’s mean of 31.7x, the company’s blended forward EV-to-EBIT and EV-to-EBITDA multiples are now telling a different story.

At 22.5x and 10.5x apiece, both multiples are now trading at more than 1sd below their respective historical performances versus the peer benchmark. EV-to-EBITDA is currently at a 17.90% discount versus the comparables’ mean (historical discount is only 12.57%), while the EV-to-EBIT premium relative to the peer group lies at a lown5.75%, a steep drop from the 16.62% that JFC typically has over its
fellow companies. We have a BUY recommendation on JFC with Target Price of P277.00 per share.

Analysis and Opinion

Operating profit strength remains persistent

In our view, the attractive valuations are underscored by JFC’s solid operating profit performance. Unlike with what we saw in much of the consumer sector in the 2nd quarter (Q2), JFC was able to steer operating profits towards a continued growth ntrajectory with growth of 31.0%.

Despite inflationary pressures, OPEX-to-Sales on the domestic front actually contracted by 140bps, which further highlights the company’s ability to temper costs despite further additions to its store count. Increased focus on franchising in recent years likely played a major role here as JFC does not need to shoulder the overhead that franchisees incur.

Moving forward, the diversified nature of JFC’s global store portfolio should help hedge against lingering macro uncertainties in the PH, as the international segment’s gross margins continue to show significant improvement along with increasing sales.

We reflected this positive outlook in our model with 23.4% YoY growth in our projected operating income along with a 40bps gain in operating margins. The odds of actual performance outpacing our forecasts is high however, assuming the trend that we saw in Q2 can be sustained.

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