Our Sponsor’s Recommendation

In our view, the acquisition would be earnings dilutive in the next 3 years given the competitive nature of the coffee industry. Currently, CBTL has 1,189 stores worldwide, which are only about 2% of the top five players. This was evident in its past two year performances. We factored in the acquired stores coupled with adjustment in assumptions and this cut our Target Price to PHP 295/share.

Already at a discount, maintain Buy rating. In the long run, downside risks that could arise are incompetent management and external factors such as competition and FX fluctuations. JFC is now trading at 30.2x P/E, which is 1-SD below its 5-year historical average P/E of 36.1x.

Our Sponsor’s Analysis

JFC fully acquired The Coffee Bean & Tea Leaf (CBTL) by investing $100 Million to a new holding company through its wholly owned subsidiary, Jollibee Worldwide Pte Ltd. The total consideration of $350 Million or about PHP 17.9 Billion will be through bridge financing and will be split into $100 Million as investment and $250 Million advances to the holding company. The holding company plans to issue preferred shares within six to nine months to repay JFC. This was the largest acquisition of JFC to date following the Smashburger.

According to Chairman Tony Tan Caktiong, JFC may turn around loss-making specialty coffee chain Coffee Bean & Tea Leaf (CBTL) in 12-18 months. This could ease selling pressures for the stock for the mean time, as the management remains confident to turnaround the recently acquired CBTL. However, we note that JFC started to acquire Smashburger back in 2015, and yet the latter remains to be a drag on JFC’s performance after 4 years.

From: Our Sponsors View And Commentary

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