Stocks in Focus: FRI 15 FEB 2019

JFC: Full-year results end in line with estimates,

2019 capex budget raised to Php17.2 Bil
4Q earnings up by 11.9% y/y, in line with estimates. JFC’s net income for the fourth quarter (AS OF FEB 14, 2019)
of 2018 increased by 11.9% y/y to Php2.0 Bil. This brought JFC’s full-year income to Php8.3 Bil, INDICES
up by 17.1% and ahead of COL (figure accounts for 102.8% of full-year forecast) and consensus Close Points % YTD%
expectations (106.3% of full-year forecast). Still, although net income is above expectations, this PSEi 7,991.25 71.01 0.90 7.03
was only due to the booking of higher other income in 4Q18 (Php1.6 Bil in 4Q18 compared to All Shares 4,851.64 39.65 0.82 7.39
Php1.6 Bil in the first nine months of the year). Financials 1,835.10 31.44 1.74 3.10
Holding Firms 7,892.41 4.76 0.06 7.50
In fact, full-year operating profits ended mostly in line with COL (98.2% of full-year forecast) and Industrial 11,548.88 110.72 0.97 5.46
slightly below consensus (96.4% of full-year forecast) expectations. Apart from the sudden jump Mining & Oil 8,516.19 -53.67 -0.63 3.85

in advertising and promotions spend in 4Q18, some cost pressures were also seen in the quarter. Property 4,029.77 66.13 1.67 11.07
Services 1,590.46 9.01 0.57 10.24
Note that A&P expenses in 4Q18 ballooned by 89.0% q/q and 25.5% y/y to Php1.5 Bil. We think
that this is a result of JFC’s focus to revitalize demand for its Smashburger business which is still
Dow Jones 25,439.39 -103.88 -0.41 9.05
operating at a loss.
S&P 500 2,745.73 -7.30 -0.27 9.53
Nasdaq 7,426.96 6.58 0.09 11.93
We currently have a HOLD rating on JFC with an FV estimate of Php267.00/sh.

INDEX GAINERS
Top Story: Ticker Company Price %
RRHI Robinsons Retail Hldgs Inc 89.40 4.56
STI: 3QFY19 recurring profits down 46.4% y/y to Php139Mil DMC DMCI Hldgs Inc 12.60 3.96
URC Universal Robina Corp 143.80 2.35
Other News: SMPH SM Prime Hldgs Inc 39.40 2.34
BDO BDO Unibank Inc 140.60 2.25
Economy: Foreign portfolio investments yield net inflows in January 2019
INDEX LOSERS
Market Summary:
Ticker Company Price %
GTCAP GT Capital Hldgs Inc 1020.00 -2.67
The Philippine stock market ended its four-day losing streak yesterday as investors went
SCC Semirara Mining 23.25 -1.90
bargain hunting.
TEL PLDT Inc 1170.00 -1.68
PCOR Petron Corporation 6.69 -1.33
The PSEi recovered by 71.01 points or 0.90% to close at 7,991.25. The top index movers were AEV Aboitiz Equity Ventures 62.55 -0.71
SMPH (+2.34%), BDO (+2.25%), ALI (+1.35%), SM (+0.71%), and BPI (+1.69%), which all bounced
from the previous day’s heavy sell-off. On the other hand, the main drags were GTCAP (-2.67%),
TEL (-1.68%), JGS (-0.71%), AEV (-0.71%), and AC (-0.43%). TOP 5 MOST ACTIVE STOCKS
Ticker Company Turnover
JFC rose 1.65% after it disclosed its full-year results yesterday. 2018 net income reached Php8.3 BDO BDO Unibank Inc 440,972,600
Bil, up by 17.1% y/y. This ended above COL and consensus estimates at 102.8% and 106.3% of ICT Int'l Container Term 341,094,300
forecast, respectively, with the outperformance primarily due to the booking of higher other ALI Ayala Land Inc 304,387,500
income in 4Q18. On the other hand, operating results were just in line with COL and slightly JFC Jollibee Foods Corp 268,147,600
SM SM Investments Corp 188,074,700
below consensus.

Value turnover declined to Php5.1Bil from Php7.3Bil in the previous session. Meanwhile, net
foreign buying returned, reaching Php252Mil. This brought the year-to-date net foreign buying
to Php22.9Bil.

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

FRI 15 FEB 2019

Top Story:

ANDY DELA CRUZ

JFC: Full-year results end in line with estimates,
SENIOR RESEARCH ANALYST
2019 capex budget raised to Php17.2 Bil
JOLLIBEE FOODS CORPORATION
HOLD 4Q earnings up by 11.9% y/y, in line with estimates. JFC’s net income for the fourth quarter
PHP267.00 of 2018 increased by 11.9% y/y to Php2.0 Bil. This brought JFC’s full-year income to Php8.3 Bil,
up by 17.1% and ahead of COL (figure accounts for 102.8% of full-year forecast) and consensus
expectations (106.3% of full-year forecast). Still, although net income is above expectations,
this was only due to the booking of higher other income in 4Q18 (Php1.6 Bil in 4Q18 compared
to Php1.6 Bil in the first nine months of the year).

In fact, full-year operating profits ended mostly in line with COL (98.2% of full-year forecast)
and slightly below consensus (96.4% of full-year forecast) expectations. Apart from the sudden
jump in advertising and promotions spend in 4Q18, some cost pressures were also seen in the
quarter. Note that A&P expenses in 4Q18 ballooned by 89.0% q/q and 25.5% y/y to Php1.5 Bil.
We think that this is a result of JFC’s focus to revitalize demand for its Smashburger business
which is still operating at a loss.

Nevertheless, revenues of JFC for the quarter remained upbeat as it grew by 18.2% y/y to
Php43.8 Bil. This brought its full-year revenues to Php158.7 Bil, in line with both COL and
consensus forecasts and accounts for 101.6% and 99.8% of full-year forecasts, respectively. The
healthy growth is still attributable to JFC’s healthy domestic and international sales, as well as
the first-time contribution of Smashburger.

Exhibit 1: Results summary

% of Forecast
in PhpMil 4Q18 4Q18 % Change FY17 FY18 % Change
COL Consensus
Revenues 37,064 43,828 18.2 131,577 158,671 20.6 101.6 99.8
Gross Profit 6,621 7,630 15.2 23,924 27,320 14.2 98.3 98.3
Gross Margin (%) 17.9 17.4 - 18.2 17.2 - - -
Operating Income 1,071 1,682 57.0 6,670 7,898 18.4 98.2 96.4
Operating Margin (%) 2.9 3.8 - 5.1 5.0 - - -
Net Income 2,003 2,242 11.9 7,109 8,328 17.1 102.8 106.3
Net Margin (%) 5.4 5.1 - 5.4 5.2 - - -
Source: JFC, COL Estimates, Bloomberg

Upbeat revenues driven by consolidation of Smash and healthy SSSG. JFC’s revenues in
the fourth quarter grew by 18.2% y/y to Php43.8 Bil. A significant chunk of sales came from
the first-time contribution of Smashburger which was consolidated starting April 17, 2018.
Because of the consolidation of Smash, systemwide sales for the quarter grew by 22.0% y/y to
Php59.0 Bil. Nevertheless, excluding incremental contribution from Smash, we estimate that
systemwide sales still grew by a robust 13.6% y/y.

COL Financial Group, Inc. 2

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

FRI 15 FEB 2019

For the year, its domestic operations grew by 15.1% to around Php156 Bil owing to its new
stores and a 6.9% same store sales growth. Meanwhile, international restaurant systemwide
sales grew by 55.5% y/y to around Php56 Bil. JFC’s international business continued to grow
rapidly thanks to the strong performance of North America (+161.1% with Smash, +21.7%
ex-Smash), EMEAA (+42.7%), and China (+9.1%). These factors brought revenues for the year
to grow by 20.6% y/y to Php158.7 Bil. This is in line with COL (101.6% of full-year forecast) and
consensus (99.8% of full-year forecast) expectations. JFC opened 317 stores domestically and
185 stores internationally in 2018.

Margins overall remain resilient. Gross profit margin for the fourth quarter declined by
50 bps y/y to 17.4%. However, this was largely due to the reclassification of some operating
expenses to store and manufacturing costs. In fact, cost of inventories as a percent of revenues
was at 47.7%, slightly lower than last year’s 48.0%. JFC was able to increase selling prices by
around 5% in the first nine months without adversely affecting its volume.

JFC’s operating expense as a percent of sales was also lower this quarter at 13.6% compared
to 4Q17’s 15.0%. This managed to bring JFC’s operating income in 4Q18 to Php1.7 Bil, up by
57.0% y/y. Following 4Q results, JFC’s 2018 operating income reached Php7.9 Bil, up by 18.4%
y/y and in line with COL’s forecast (accounts for 98.2% of our full-year forecast).

2019 domestic SSSG to see boost from elections. With the upcoming May elections, we think
that there will be around a 2 to 3 percentage point boost for its SSSG in the first half of the year.
Note that in past elections, JFC was always a beneficiary of election related spending most
probably due to its attractive price point and its accessible stores across the nation. For the
year, we expect a robust 6% SSSG for its domestic business.

Factoring in higher capex budget for 2019. JFC disclosed that it will be raising its capex
budget for 2019 to Php17.2 Bil. This is higher than what we anticipated since we only expected
Php9.1 Bil in capex. This is also much higher than the actual capex in 2018 of around Php9.3
Bil. JFC discussed that the huge capex budget is planned for a combination of new stores,
renovation of existing stores, as well as investments in manufacturing plants.

In light of this, we will be adjusting our capex assumption for 2019 to Php16.1 Bil, slightly lower
than JFC’s planned capex budget. In the past few years, JFC has always underspent its capex
allocation due to timing issues. Our earnings forecast for 2020 is lowered by 0.7% to Php11.4
Bil as a result of higher depreciation from said capex.

COL Financial Group, Inc. 3

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

FRI 15 FEB 2019

Exhibit 2: Summary of changes in forecast

2019E 2020E
in PhpMil Old New % Change Old New % Change
Revenue 183,827 183,827 0.0 207,802 207,802 0.0
Gross Profit 33,273 33,273 0.0 38,236 38,236 0.0
Gross Margin (%) 18.1 18.1 - 18.4 18.4 -
Operating Income 9,743 9,743 0.0 12,053 12,053 0.0
Operating Margin (%) 5.3 5.3 - 5.9 5.8 -
Net Income 9,443 9,443 0.0 11,504 11,422 -0.7
Net Margin (%) 5.1 5.1 - 5.4 5.5 -
Fair Value 268.0 267.0 -0.4
Source: COL Estimates

Maintain HOLD rating. Following are adjustments in our forecast, our fair value estimate is
lowered marginally to Php267.0/sh from Php268.0/sh. Moreover, we are maintaining our HOLD
rating for JFC since the stock is already trading above our fair value estimate. Although we
believe that JFC deserves to trade at a premium given its superior earnings growth outlook and
its size, at its current price of Php321.20/sh, we think that the company’s superior performance
is mostly priced in.

Top Story:

ADRIAN ALEXANDER YU STI: 3QFY19 recurring profits down 46.4% y/y to

RESEARCH ANALYST
Php139Mil
STI HOLDINGS, INC.
N/A STI’s 3QFY19 profits were down 46.4% y/y to Php139Mil, bringing 9MFY19 profits to
N/A Php190.3Mil. Earnings disappointed as revenues fell by 10.4% y/y to Php771Mil due to lower
enrollments for the year. Meanwhile 9MFY18 general and administrative expenses grew
by 16% y/y to Php971.4Mil from Php838.2Mil. Advertising and promotions registered an
increase of Php56.9Mil as the marketing campaign for Senior High School (SHS) and tertiary
programs were intensified. Because of the said factors, 9MFY19 operating income decreased
to Php262Mil, from Php3646Mil earned during the same period last year.

Exhibit 1: Results Summary

in PhpMil 3Q18 3Q19 % Change 9M18 9M19 % Change

Revenues 860 771 (10.4) 2,232 1,997 (10.5)
Operating income 305 178 (41.8) 646 262 (59.5)
Operating margin (%) 70.9 46.1 - 57.8 26.2 -
Core Net Income 259 139 (46.4) 534 190.3 (64.4)
Core Net Income Margin (%) 30.1 18.0 - 23.9 9.5 -

source: STI

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

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STI Management cautiously optimistic student population to bounce back next school
year. Given the lower than expected turn out during STI’s second batch of enrollment, STI
conducted focus group discussions with students. Management discovered that free tuition,
high inflation, and student’s desire to move to other schools were the main causes for the low
turn-out. Note that for SY2018-2019, STI’s total student enrollment dropped by 18.3% y/y to
85,797 as of end September 2018. Despite the drop, management is cautiously optimistic that
the student population count will bounce back for next school year. STI believes it will be able
to increase its student count by focusing on recruiting more students in Senior High School to
fill excess capacity, while improving their conversion rate to fill the tertiary segment.

Exhibit 2: Breakdown of student population

y/y %
FY18 3Q19
Change
STI Branded
STI Owned 54,366 44,298 -18.52
STI Franchised 42,165 32,543 -22.82
STI WNU 6,772 6,665 -1.58
iACADEMY 1,728 2,291 32.58
Total Enrollees 105,031 85,797 -18.31
source: STI

Higher expenses continue to weigh down profits. Aside from lower revenues, higher
expenses also weighed down on profits. Cost of educational services increased by Php41.5Mil
to Php655Mil during the nine-month period ended September 30. Depreciation and
amortization expenses also increased by Php44.9Mil on the back of the newly completed
STI ESG and iAcademy buildings. Note that STI Lipa started operations in the new building in
August of 2018, contributing to the said increase in depreciation charges.
Valuations remain attractive given steep share price selloff.

Shares of STI were sold down significantly last year after the company disclosed disappointing
enrollment numbers. Consequently, at its current price of Php0.77/sh, STI is trading at 9.7x P/E.
This is based on the company’s recurring FY2018 earnings of Php796.5Mil, which excludes STI’s
equity in net losses of associates and JVs of Php245Mil. At 9.7x P/E, STI is trading at a steep
discount to the 21x average 2019E P/E of its peers.

However, buyers of STI continue to face the risk that it might take another two years for the
company’s profit to resume growth as it will take time for the negative impact of the K-12
program implementation to fade away. Until then, shares of STI may continue to trade at a
steep discount as profits can remain flattish.

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

FRI 15 FEB 2019

Other News:

RESEARCH ANALYSTS Economy: Foreign portfolio investments yield net inflows in January 2019
ANDY DELA CRUZ
JOHN MARTIN LUCIANO Foreign portfolio investments reached US$2.1Bil in January 2019. This figure is 27.0% higher
FRANCES ROLFA NICOLAS than the recorded inflows in January 2018. Around 71.6% of the investments registered in the
JUSTIN RICHMOND CHENG month were PSE-listed securities, while the remaining 28.4% balance went to Peso government
ADRIAN ALEXANDER YU securities and Peso time deposits. Outflows for the month reached US$1.3Bil, 11.1% lower
compared to the US$1.5Bil recorded in the same month last year. The US continued to be the
main destination of outflows as it received 78.4% of total remittances. Transactions for the
month ended with net inflows of US$763Mil, an improvement versus the net inflows recorded
in December 2018 (US$278Mil) and January 2018 (US$162Mil). According to BSP, this may be
attributable to investor optimizing coming from easing trade tensions between the US and
China as well as the decline in inflation coupled with higher net foreign buying for PSE-listed
securities. (source: BSP)

COL Financial Group, Inc. 6

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IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

ANDY DELA CRUZ JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS

SENIOR RESEARCH ANALYST SENIOR RESEARCH ANALYST RESEARCH ANALYST
andy.delacruz@colfinancial.com john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com

JUSTIN RICHMOND CHENG ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST
justin.cheng@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 8