Tim Ho Wan And North America Expansion Will Drive Prospects

Key Takeaways

• Strategic pricing and supplier agreements in the Coffee and Tea segment maintain profitability amid rising input costs.
  
• North American expansion and franchise growth enhance sales and earnings, leveraging regional high-growth potential.
  
• Inflation, market challenges, rising debt, and competitive pressures pose risks to Jollibee's profitability and revenue growth across key markets.

Catalysts

Develops, operates, and franchises quick service restaurants.

• The acquisition and strategic repositioning of Tim Ho Wan could enhance system-wide sales and margins through menu innovation and regional expertise, positively impacting revenue and operating income.
  
• Expansion plans in North America aim to capitalize on franchise interest, potentially boosting sales and improving earnings as the brand scales up in a high-growth region.
  
• The launch of Jollibee’s Loyalty Program is expected to increase customer engagement and spending frequency, contributing to higher average check sizes and stronger revenue growth.
  
• Operational changes and new offerings at Smashburger, alongside nontraditional location launches, are projected to improve margins and contribute positively to EBITDA.
  
• Strategic pricing management and supplier agreements in the Coffee and Tea segment could safeguard margins against rising input costs, maintaining profitability and supporting net income growth.

Jollibee Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jollibee Foods's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 4.7% in 3 years time.
• Analysts expect earnings to reach ₱17.0 billion (and earnings per share of ₱14.0) by about May 2028, up from ₱9.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₱13.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.7x on those 2028 earnings, up from 28.3x today. This future PE is greater than the current PE for the PH Hospitality industry at 14.0x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.5%, as per the Simply Wall St company report.

Jollibee Foods Future Earnings Per Share Growth

Risks

• Continued inflation and potential tariff impacts in key markets like North America could increase costs, leading to reduced net margins if Jollibee cannot adjust pricing effectively.
  
• Challenges in the China market, including significant negative same-store sales growth and the need for substantial growth to return to profitability, could negatively impact earnings if not addressed.
  
• The rising interest expenses and increased debt levels due to acquisitions may affect future earnings and financial flexibility, especially if these investments do not perform as expected.
  
• Fragility in the U.S. economy and potential economic downturns could impact franchisee interest and expansion, potentially affecting revenue growth projections.
  
• Competition and consumer behavior shifts in domestic markets such as the Philippines could limit sustainable high sales growth over the long term, impacting revenue forecasts.

Valuation

• The analysts have a consensus price target of ₱301.583 for Jollibee Foods based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱330.0, and the most bearish reporting a price target of just ₱199.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱358.4 billion, earnings will come to ₱17.0 billion, and it would be trading on a PE ratio of 29.7x, assuming you use a discount rate of 14.5%.
  
• Given the current share price of ₱245.0, the analyst price target of ₱301.58 is 18.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.