JFC (PHP181.30): Jolly sales and profits in 1H14
BUY (unchanged)
- ATR Securities
What’s New
Jollibee Foods Corp’s (JFC) net income grew 17.2% YoY to PHP2.47b in 1H14, accounting for 43.8% of our PHP5.63b full-year forecast. This compares with the 9M13 contribution of 45% to 2013 earnings. Revenues grew 14.8% to PHP43.7b (46.7% of 2014F) while operating income went up 10.5% to PHP3b (42%). JFC sustained robust same-store-sales growth (SSSG) of 8% in 2Q14 while store network increased 6% YoY, ending 1H14 with 2,833 stores (2,244 domestic + 589 international). This led to 14.1% growth in combined company owned and franchised stores in 2Q14 and up 14.3% in 1H14. Notwithstanding higher raw material prices, JFC's gross margin improved to 19% in 2Q14 from 18.6% in
2Q13 and sequentially from 18.2% in 1Q14. This was achieved through gradual selling price hikes and better operational leverage. However, general and administrative grew 25% in 2Q14 due to information systems upgrade and higher employee-related expenses. As a result, 2Q14 operating income growth softened to 5% YoY from 18% in 1Q14. Nonetheless, 2Q14 net income still grew 14.8% to PHP1.39b, helped by lower income taxes mainly due to the application of net operating loss carryover from overseas operations.
What’s Our View
We believe JFC is generally on track to meet our full year forecasts with robust SSSG sustainable. However, there could be a slowdown in August due to disruptions in operations related to the information systems upgrade and the improvised measures to mitigate its impact will entail additional costs. But we view this as a one-off event. Operations should normalize next week with temporarily closed stores expected to be open this week while the full range of products to be made available starting next week. We reiterate BUY based on our Street-high target price of PHP210.
Disruptions due to information systems upgrade a one-off
JFC’s ongoing operations are experiencing temporary disruptions as the company migrated to a new enterprise platform, its biggest information systems upgrade costing at least PHP500m this year. It went live last 1 August. JFC has temporarily closed 72 stores, serving limited menus in stores in Metro Manila and nearby cities as its logistics and distribution systems were affected. JFC estimates that it lost 6% of its normal nationwide sales in the first week of August due to this problem but SSSG was still +4% in the same period. JFC estimates it can still grow sales in 2H14 at the same rate as in 1H14 notwithstanding the August disruption. Normal operations are expected by next week.
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