Philippines' Jollibee Seeks Acquisitions in China

Date AddedJuly 31, 2009 12:55:58 PM

Author

Philippines' Jollibee Seeks Acquisitions in China (Update1)

By Ian C. Sayson and Frank Longid

July 24 (Bloomberg) -- Jollibee Foods Corp., a fast food chain that outsells McDonald's Corp. in the Philippines, seeks acquisitions in China, counting on the world's most populous nation to meet a goal of making half of its sales abroad.

"After the Philippines, our most important market is China," Chief Financial Officer Ysmael Baysa said in an interview. "China is the world's most promising economy."

Jollibee, whose market value has grown sevenfold since listing in 1993, plans to start opening more stores overseas than domestically in two years, Baysa said. The company will add brands in China, where the restaurant industry grew 26.5 percent last year to $259 billion, according to Euromonitor.

"The potential for a higher growth rate will come from abroad," said Lovell Sarreal, an analyst at ATR KimEng Securities Inc. in Manila who recommends buying the company's stock. "Jollibee has a strong cash flow so it can acquire more brands."

The Manila-based restaurant operator will keep its strategy of using its Philippine brands in areas where there are large concentrations of overseas Filipinos and buying local brands in markets such as China, where it doesn't have that advantage, Baysa said.

Local Brands

"We are less interested in bringing our own brands to other markets," Baysa said. "If we go for local consumers in a foreign market like China then it's better for us to buy a local brand then improve and expand it."

Philippine retailer and mall operator SM Investments Corp., controlled by billionaire Henry Sy, is also increasing spending in China as Philippine consumer spending weakens.

Jollibee owns Shanghai-based Yonghe King, acquired in 2004 for $11.5 million, and Beijing-based Hongzhuangyuan, bought for $55.5 million last year. The two China chains' 182 outlets account for over half of the company's 306 stores outside the Philippines.

Jollibee, which increased Yonghe's outlets to 143 from 77 when the brand was acquired, will add more stores for Hongzhuangyuan's 39 outlets, Baysa said. The company also plans to bring Lao Dong, a beef noodle restaurant based in Taiwan, into China and add to the two outlets it has for Chun Shui Tang Tea House, he said. Jollibee holds the China franchise for Taiwan-based Chun Shui Tang Tea House, he said.

Share-Price Gains

Jollibee was unchanged at 50 pesos in Manila trading today. The stock has gained 627 percent since it began trading in June 1993, outpacing a 63 percent advance in the main Philippine Stock Exchange Index over the same period and a 3 percent loss in the MSCI Asia Pacific Index.

Shares of McDonald's Corp., the world's largest restaurant company, have risen 351 percent in value over the same period. There are 289 McDonald's outlets in the Philippines against 656 Jollibee-branded stores. The Philippine company's other brands have another 859 outlets.

Jollibee seeks to boost expansion overseas before its growth slows in the Philippines, where it has 1,515 outlets for its six domestic brands and consumer spending grew at its weakest pace based on data that go back until 1988.

First-quarter consumer spending grew 0.8 percent in the Philippines, where about a quarter of the nation's 94 million population lives on less than $1.25 a day. The jobless rate, at 7.5 percent, is Asia's second highest.

Analyst Forecast

Jollibee made 14 percent of last year's 44.19 billion peso ($920 million) revenue abroad, and aims to boost that to about 50 percent in eight years, Baysa said.

The company "still has room to grow in the Philippines because the market isn't saturated yet," said Sarreal, who forecasts Jollibee's stock to rise to 59 pesos in 12 months.

About 55 percent of the 186 stores the company plans to open this year will be in the Philippines, Baysa said. The company had 6.68 billion pesos ($139 million) in cash at end March and plans to spend 4 billion pesos for expansion this year.

Jollibee started as an ice cream parlor in 1975 in Manila and since then has collected six Philippine brands, including its namesake and flagship restaurant, which sells hamburgers and fried chicken.

In 1986, a year after it became market leader of the local fast-food industry, the company opened its first restaurant overseas by setting up a Jollibee outlet in Taiwan, one of the destinations for Filipino workers in Asia.

A Jollibee outlet in the U.S., home to the biggest population of Filipinos abroad, was set up in 1998. The company now has 26 Jollibee restaurants, 32 Red Ribbon bake shops and 17 Chowking Chinese fast food outlets in the U.S.

The strategy of exporting Jollibee's Philippine brand hasn't always paid off. In 2001, Jollibee shut its first outlet in mainland China four years after it started selling its hamburgers and fried chicken in Xiamen. Jollibee hasn't expanded beyond its single outlets each in Guam and Saudi Arabia, two of the five overseas markets that it ventured into in 1995.

"Jollibee has found another way to grow its international business," said ATR KimEng's Sarreal. "Previously, it just relied on exporting its Philippine brands. That all changed with the acquisition of Yonghe in China."

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net