jollibee foods corporation - credit suisse

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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

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06 December 2013

Asia Pacific/Philippines

Equity Research

Restaurants

Jollibee Foods Corporation

(JFC.PS / JFC PM) INITIATION

Great fast food comes at a price

■ Initiating coverage with OUTPERFORM and 20% total return potential

upside. Rather than drawing the obvious conclusion that Jollibee is

overvalued (history has proven this to be a questionable stance), our thesis

is that ~20% EPS growth, positive surprise potential, higher returns, 40%+

FCF growth and higher cash distributions to shareholders cannot be

underestimated. Jollibee is an immensely relevant consumer company

where 11% of the Philippine population visits one of the company’s outlets

every single week.

■ Three pillars to defining a superior consumer franchise. Empirical data

supports that consistent EPS growth, high and rising excess returns, and

financial prowess are the key criteria that determine whether consumer

companies can trade at PEG ratios of 2.0-2.5x. Jollibee has among the best

earnings growth track records, the highest and fastest rising excess returns

and one of the best balance sheets and FCF generation profiles of NJA

consumer companies.

■ Home is the foundation, abroad is the catalyst. The Philippines is our most

preferred consumer market for 2014 because consumption growth can sustain

at 1.5-2.0x higher than historical trends. We believe 80% of Jollibee’s sales

growth will come from the Philippines over the next three years. By deploying

excess capital behind ROIC-accretive expansion both home and abroad, the

value of their existing franchise should rise by 16% annually. In addition, we

believe there is >50% probability that the company enters Indonesia, which

would be incremental to earnings and is not factored into today’s share price.

■ Upside driven by earnings growth. We have a high degree of confidence

in our above-consensus EPS forecasts and that this will drive share price

gains from here. Our P205 target price assumes flat multiples. Downside

risks include macroeconomic, forex, acquisition and natural disaster risks.

Share price performance

80

100

120

140

160

80

130

180

Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

PHILIPPINE SE COMPOSITE INDEX which closed at 6030.95

on 05/12/13

On 05/12/13 the spot exchange rate was P43.86/US$1

Performance Over 1M 3M 12M Absolute (%) -2.0 5.8 64.2 Relative (%) 5.5 4.8 58.1

Financial and valuation metrics

Year 12/12A 12/13E 12/14E 12/15E Revenue (P mn) 71,059.0 80,688.9 91,710.7 104,100.4 EBITDA (P mn) 7,052.1 8,512.7 9,943.8 11,673.9 EBIT (P mn) 4,346.5 5,505.6 6,595.1 8,234.7 Net profit (P mn) 3,728.2 4,601.0 5,439.0 6,723.5 EPS (CS adj.) (P) 3.51 4.34 5.13 6.34 Change from previous EPS (%) n.a. Consensus EPS (P) n.a. 4.31 5.03 5.90 EPS growth (%) 13.5 23.4 18.2 23.6 P/E (x) 49.5 40.1 33.9 27.5 Dividend yield (%) 1.3 1.4 1.8 2.3 EV/EBITDA (x) 25.5 21.1 18.0 15.0 P/B (x) 9.8 8.8 8.0 7.2 ROE (%) 20.5 23.2 24.8 27.6 Net debt/equity (%) net cash net cash net cash net cash

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* Price (05 Dec 13, P) 174.00 Target price (P) 205.00¹ Upside/downside (%) 17.8 Mkt cap (P mn) 183,112 (US$ 4,175) Enterprise value (P mn) 179,459 Number of shares (mn) 1,052.37 Free float (%) 40.9 52-week price range 185.0 - 102.0 ADTO - 6M (US$ mn) 2.6

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

Research Analysts

Karim P. Salamatian, CFA

852 2101 7996

[email protected]

Rebecca Kwee

852 2101 7951

[email protected]

06 December 2013


(JFC.PS / JFC PM) 2

Focus charts Figure 1: JFC has exposure to strong domestic trends

and high-potential NJA markets 2013E system-wide sales breakdown by country and major format

Figure 2: Growth will primarily be driven by extracting

greater profitability from existing assets … 2013E-16E breakdown of EPS growth (% YoY)

Jollibee 49%

Chowking13%

Mang Inasal

9%

Other 10%

Yonghe King10%

Other 9%

Philippines 81%

China 13%

USA 3.5%

ASEAN & Middle East

2.5%

2013E system-wide sales P104bn

26%44% 34% 42%

7%

15% 11% 13%

67%41%

55%

45%

FY13E FY14E FY15E FY16E

SSSG Store growth EBITDA Margin Expansion

24%

18%

24%

18%

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 3: … as EBITDA per store is expected to rise JFC 2012-16E EBITDA/avg. store (P mn)

Figure 4: This in turn should extend the impressive streak

of consistent earnings growth … Quarterly EPS growth, % YoY

2.8

3.1

3.5

3.9 4.2

FY11 FY12 FY13E FY14E FY15E

2012-2016E CAGR: 11%

-30%

-10%

10%

30%

50%

70%

90%

2Q02

1Q03

4Q03

3Q04

2Q05

1Q06

4Q06

3Q07

2Q08

1Q09

4Q09

3Q10

2Q11

1Q12

4Q12

3Q13

Source: Company data, Credit Suisse estimates Source: Company data

Figure 5: … and push excess return expansion higher JFC 2012-15E ROIC and excess (ROIC- WACC) return

Figure 6: All while generating free cash flow and

maintaining strong balance sheet optionality JCF FCF per share and YoY growth (2012-16E)

14.8%

17.1%18.8%

21.3%

6.6%

8.9%

10.6%

13.1%

2012 2013E 2014E 2015E

ROIC Excess Return (ROIC-WACC)

3.99

2.733.32

7.60

8.63

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

FY12 FY13E FY14E FY15E FY16E

Free cash flow per share (PHP)

YoY% growth (RHS)


06 December 2013


(JFC.PS / JFC PM) 3

Great fast food comes at a price Jollibee is the largest foodservice operator in NJA by market capitalisation and sales with

2,800 outlets (48% franchised) in ten different formats/concepts. Around 81% of system-

wide sales come from the Philippines while the balance from nine other markets including

China, Vietnam, US, Hong Kong, Singapore and the Middle East. Jollibee’s strength can

be defined by the fact that it is one of the most relevant consumer stories among NJA—

Jollibee serves 11% of the Philippine population every single week.

At first glance, it is easy to overlook Jollibee shares because of the valuation; however, we

believe doing so poses considerable Type II risk even at current levels. We do not

recommend underestimating Jollibee’s ability to deliver ~20% EPS growth, positive

surprises, rising returns and higher cash distributions to shareholders.

Defining Jollibee’s consumer franchise Strong consumer franchises that can sustain large premium valuations have three things

in common: (1) Consistent and visible earnings growth over long periods of time. Over the

last 48 quarters, Jollibee has delivered positive YoY EPS growth 40 times at an average

rate of 15% YoY. Seventeen times in the past 21 years Jollibee has posted positive

earnings growth. Empirically, when large consumer companies generate consistent growth

over five years or more, PEG ratios average 2.5x. (2) High and rising excess returns over

cost of capital. There is high correlation between valuations (EV/EBITDA and P/E) and

excess returns (ROIC less WACC). Jollibee generates among the highest excess returns

of its domestic consumer and NJA foodservice peers. On top of this, Jollibee is expected

to increase its excess returns at a much faster rate over the next three years. (3) Financial

prowess—cash to return to shareholders and/or pursue new growth. Jollibee has

maintained a net cash position despite increasing its total assets and store count by 41%

and 60%, respectively, since 2009. Its FCF is expected to grow 2x faster than earnings

over the next three years.

Maximising returns from existing formats With a total invested capital base of US$650 mn, the strongest driver of growth will come

from existing assets, in our view. Over the next four years, we believe the company can

harvest its existing asset base better by increasing productivity at the Jollibee format in

both the Philippines and international markets, building on the recent momentum in China

and turning Vietnam profitable. We conservatively expect EBITDA/store to increase 11%

annually. This is in addition to 5% annual growth in existing formats.

Capitalising on the best growth markets The Philippines is our most preferred consumer market heading into 2014 because Private

Consumption Expenditure (PCE) is expected to accelerate 90 bp from an already high

base in 2013 and average nearly 2x the historical rate in 2014 and 2015. Furthermore, it

has the third lowest penetration of QSRs (Quick Service Restaurants) in NJA after

Indonesia and India. We believe 80% of Jollibee’s growth over the next four years will

come from the domestic market. International sales growth should be fuelled by China and

Vietnam where penetration and per capita spending at QSR are attractively low. Indonesia

is the most interesting market that Jollibee does not operate in, and we believe the

company could positively surprise the market by entering this country in the next two

years.

Don’t be deterred by valuation Our key point on valuation is to not let it be immediately off-putting because consumer

franchises such as Jollibee often sustain levels this high for considerably long times or at

least until the earnings growth streak comes to an end. Jollibee is on a five-year EPS growth

streak that is not expected to end anytime soon. Therefore, our TP of P205 implies flat

multiples. If growth accelerates from stronger trends in the Philippines and/or China, plus a

sensible acquisition in Indonesia, multiple expansion would not be completely unfathomable.

Downside risks include macroeconomic, forex, acquisition and natural disaster risks.

Jollibee is the largest

foodservice operator in NJA

with 2,800 stores across ten

markets

Don’t underestimate how

the fundamentals can

sustain the valuation

Jollibee has delivered EPS

growth in 40 of the last 48

quarters, has high and rising

excess returns and a very

strong balance sheet

Growth will primarily come

from harvesting existing

assets

Exposed to the most

attractive markets with

possibility of entering

Indonesia in 2014 or 2015

TP assumes multiples will

be sustained by strong

fundamental performance

06 December 2013


(JFC.PS / JFC PM) 4

Jollibee Foods Corporation JFC.PS / JFC PM Price (05 Dec 13): P174.00, Rating: OUTPERFORM, Target Price: P205.00, Analyst: Karim Salamatian

Target price scenario

Scenario TP %Up/Dwn Assumptions

Upside 255.00 46.55 20% sales growth p.a., 5% multiple expansion

Central case 205.00 17.82 13% sales growth p.a., flat multiples

Downside 145.00 (16.67) 5% sales growth p.a., 5% multiple contraction

Key earnings drivers 12/12A 12/13E 12/14E 12/15E

Number of stores 2,628 2,778 2,931 3,084 System-wide sales growth 12.3 13.1 13.6 13.3 Opex as % of sales 11.7 11.5 11.5 11.4 — — — — — — — —

Income statement (P mn) 12/12A 12/13E 12/14E 12/15E

Sales revenue 71,059 80,689 91,711 104,100 Cost of goods sold 58,434 65,901 74,563 83,982 SG&A — — — — Other operating exp./(inc.) 5,573 6,276 7,204 8,445 EBITDA 7,052 8,513 9,944 11,674 Depreciation and amortisation 2,706 3,007 3,349 3,439 EBIT 4,346 5,506 6,595 8,235 Net interest expense/(inc.) (64.1) (128.8) (107.5) (156.5) Non-operating inc./(exp.) 503.5 500.0 500.0 500.0 Associates/JV (51.0) (50.0) (10.0) — Recurring PBT 4,863 6,084 7,193 8,891 Exceptionals/extraordinaries — — — — Taxes 1,150 1,460 1,726 2,134 Profit after tax 3,713 4,624 5,466 6,757 Other after tax income — — — — Minority interests (15.1) 23.1 27.3 33.8 Preferred dividends — — — — Reported net profit 3,728 4,601 5,439 6,724 Analyst adjustments — — — — Net profit (Credit Suisse) 3,728 4,601 5,439 6,724

Cash flow (P mn) 12/12A 12/13E 12/14E 12/15E

EBIT 4,346 5,506 6,595 8,235 Net interest (35.4) 128.8 107.5 156.5 Tax paid (1,363) (1,460) (1,726) (2,134) Working capital 1,292 536 478 775 Other cash and non-cash items 3,351 3,057 3,359 3,439 Operating cash flow 7,591 7,767 8,813 10,472 Capex (3,756) (5,376) (5,848) (3,048) Free cash flow to the firm 3,835 2,391 2,965 7,424 Disposals of fixed assets — — — — Acquisitions (127.6) — — — Divestments 41.8 — — — Associate investments — — — — Other investment/(outflows) (42.0) — — — Investing cash flow (3,884) (5,376) (5,848) (3,048) Equity raised — — — — Dividends paid (2,274) (2,610) (3,221) (4,079) Net borrowings 72 (232) (235) (3,844) Other financing cash flow 33.4 (225.1) (246.4) (197.5) Financing cash flow (2,169) (3,067) (3,702) (8,121) Total cash flow 1,538 (675) (736) (697) Adjustments 8.0 — — — Net change in cash 1,546 (675) (736) (697)

Balance sheet (P mn) 12/12A 12/13E 12/14E 12/15E

Cash and cash equivalents 8,849 8,849 8,849 8,849 Current receivables 2,750 2,690 2,620 2,603 Inventories 2,630 2,929 3,242 3,574 Other current assets 1,395 1,395 1,395 1,395 Current assets 15,623 15,862 16,105 16,419 Property, plant & equip. 11,059 13,428 15,928 15,536 Investments 3,894 3,844 3,834 3,834 Intangibles 8,705 8,705 8,705 8,705 Other non-current assets 2,709 2,709 2,709 2,709 Total assets 41,991 44,548 47,281 47,204 Accounts payable 4,717 5,492 6,214 7,303 Short-term debt 4,573 4,341 4,106 262 Current provisions — — — — Other current liabilities 7,281 7,281 7,281 7,281 Current liabilities 16,571 17,114 17,601 14,846 Long-term debt 854.6 854.6 854.6 854.6 Non-current provisions — — — — Other non-current liab. 2,672 2,672 2,672 2,672 Total liabilities 20,097 20,640 21,128 18,372 Shareholders' equity 18,872 20,864 23,082 25,726 Minority interests 733.1 756.2 783.6 817.3 Total liabilities and equity 41,991 44,548 47,281 47,204

Per share data 12/12A 12/13E 12/14E 12/15E

Shares (wtd avg.) (mn) 1,061 1,061 1,061 1,061 EPS (Credit Suisse) (P) 3.51 4.34 5.13 6.34 DPS (P) 2.18 2.50 3.09 3.92 BVPS (P) 17.8 19.7 21.8 24.3 Operating CFPS (P) 7.2 7.3 8.3 9.9

Key ratios and valuation

12/12A 12/13E 12/14E 12/15E

Growth (%) Sales revenue 13.6 13.6 13.7 13.5 EBIT 11.4 26.7 19.8 24.9 Net profit 15.4 23.4 18.2 23.6 EPS 13.5 23.4 18.2 23.6 Margins (%) EBITDA 9.9 10.6 10.8 11.2 EBIT 6.12 6.82 7.19 7.91 Pre-tax profit 6.84 7.54 7.84 8.54 Net profit 5.25 5.70 5.93 6.46 Valuation metrics (x) P/E 49.5 40.1 33.9 27.5 P/B 9.8 8.8 8.0 7.2 Dividend yield (%) 1.25 1.44 1.78 2.25 P/CF 24.3 23.8 20.9 17.6 EV/sales 2.53 2.22 1.95 1.68 EV/EBITDA 25.5 21.1 18.0 15.0 EV/EBIT 41.3 32.6 27.2 21.3 ROE analysis (%) ROE 20.5 23.2 24.8 27.6 ROIC 17.6 21.6 23.6 28.9 Asset turnover (x) 1.69 1.81 1.94 2.21 Interest burden (x) 1.12 1.11 1.09 1.08 Tax burden (x) 0.76 0.76 0.76 0.76 Financial leverage (x) 1.92 1.86 1.81 1.64 Credit ratios Net debt/equity (%) (15.6) (15.3) (14.9) (26.8) Net debt/EBITDA (x) (0.49) (0.43) (0.39) (0.66) Interest cover (x) (67.8) (42.7) (61.3) (52.6)

Source: Company data, Thomson Reuters, Credit Suisse estimates.

0

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2006 2007 2008 2009 2010 2011

12MF P/E multiple

0.0

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1.0

1.5

2.0

2.5

3.0

2006 2007 2008 2009 2010 2011

12MF P/B multiple

Source: IBES

0

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ber 2

01

3

Jo

llibe

e F

oo

ds

Co

rpo

ratio

n

(JF

C.P

S / J

FC

PM

) 5

Figure 7: Jollibee vs global foodservice sector valuations

Market Avg

Absolute

Performance

Relative

Performance EPS growth P/E EV/EBITDA EBITDA margin DvD Yld ROE P/BV FCF Yld ROIC

NetDebt/

Equity

priced as of Dec 5 2013 Ticker Upside cap

daily

t/o (%) (%) (%) (x) (x) (%) (%) (%) (x) (%) (%) (%)

(%) (USDm) YTD 12m YTD 12m T+1 T+2 T+3 T+1 T+2 T+3 T+1 T+2 T+1 T+2 T+1

Non-Japan Asia Foodservice

Jollibee Foods Corporation JFC.PS 18 4,175 2.6 71 58 67 54 23 18 24 40.1 33.9 27.5 14.2%* 13.9%* 10.6 10.8 1.4 22.1 8.8 1.3 17.1 (15.3)

Cafe De Coral 0341.HK n.a. 1,898 1.3 16 13 12 7 14 13 16 27.0 24.0 20.6 14.2 12.0 14.1 14.5 3.5 16.0 4.1 n.a. n.a. n.a.

Jubilant Foodworks JUBI.BO (32) 1,404 5.8 1 (1) (6) (9) 10 28 24 57.9 45.3 36.5 29.9 23.4 16.1 16.3 0.0 25.6 14.8 0.1 24.7 (5.8)

Ajisen 0538.HK 51 1,054 2.5 1 6 (3) (1) 83 22 18 28.6 23.3 19.8 13.5 10.8 15.2 16.8 1.2 8.9 2.5 5.1 8.3 (57.8)

Tsui Wah Holding 1314.HK 20 963 2.1 114 n/a 110 n/a 10 32 62 47.0 35.7 21.9 35.9 26.4 16.8 16.2 0.9 12.5 5.9 1.4 13.2 (88.3)

NJA Average 41 19 36 13 28 23 29 40.1 32.5 25.3 23.4 18.1 14.5 14.9 1.4 17.0 7.2 2.0 15.8 (41.8)

International Foodservice

McDonald's Corp MCD.N n.a. 95,234 119.2 9 7 (17) (19) 4 7 10 17.2 16.1 14.7 10.5 10.0 36.3 36.2 3.3 35.9 6.1 4.4 n.a. n.a.

Yum! Brands, Inc. YUM.N n.a. 33,694 48.1 14 14 (12) (12) (10) 24 17 26.0 21.0 18.0 14.1 12.0 20.2 20.9 1.8 60.4 15.3 3.7 n.a. n.a.

Chipotle Mexican CMG.N n.a. 16,033 27.2 74 90 48 63 20 24 23 49.5 40.0 32.6 21.5 17.4 19.8 20.8 0.0 27.1 10.7 1.6 n.a. n.a.

Dominos Pizza DPZ n.a. 3,828 44.7 58 64 32 38 21 15 15 28.2 24.5 21.4 15.3 13.8 19.1 19.7 1.2 (10.8) (3.0) 2.9 n.a. n.a.

The Wendy's Company WEN.OQ n.a. 3,345 8.5 82 80 56 53 48 17 19 34.0 29.1 24.4 11.3 10.8 14.6 17.9 1.8 4.0 1.7 1.9 n.a. n.a.

International Average 47 51 22 25 16 17 17 31.0 26.2 22.2 14.5 12.8 22.0 23.1 1.6 23.3 6.1 2.9 n.a. n.a.

Philippines Consumer

Alliance Global Group Inc AGI.PS 25 5,690 8.3 45 50 41 45 14 21 18 15.4 12.8 10.8 7.7 6.3 27.4 27.9 1.6 14.9 2.2 2.7 10.1 (7.9)

Universal Robina Corp. URC.PS 22 5,599 7.5 42 48 38 43 19 14 16 27.1 23.7 20.4 18.3 15.6 16.9 17.5 2.0 18.1 4.9 2.2 17.9 (15.5)

Puregold Price Club, Inc PGOLD.PS n.a. 2,624 3.6 26 28 22 23 27 26 16 29.4 23.3 20.0 15.9 12.6 8.5 8.9 0.6 13.6 3.7 n.a. 24.0 n.a.

Philippines Average 38 42 34 37 20 20 17 24.0 19.9 17.1 14.0 11.5 17.6 18.1 1.4 15.5 3.6 2.5 17.3 (11.7)

*comparable gross margin: adjusted COGS (only incl. cost of inventories) and excluding commisary sales to franchises

Source: Company data, IBES, Credit Suisse estimates for covered companies

06 December 2013


(JFC.PS / JFC PM) 6

Defining Jollibee’s consumer franchise At first glance, it is easy to overlook Jollibee shares because of the valuation; however, we

believe doing this poses considerable Type II risk even at current levels because

underestimating strong consumer franchises based solely on valuation often leads to high

opportunity costs.

The three most important characteristics of a strong consumer franchise are:

(1) Consistent and visible earnings growth over long periods of time;

(2) high and rising excess returns over cost of capital;

(3) Financial prowess – strong balance sheet with cash to return to shareholders and

purse new growth opportunities.

In the case of Jollibee, its superior consumer franchise in absolute terms and relative to

both the Philippines and NJA foodservice peers is what we believe will sustain the current

valuation multiple in coming years. As a result, we believe the risk of material multiple

contraction is low.

Our TP of P205 assumes valuation multiples remain constant over the next 12 months.

Best-in-class earnings growth consistency

For 12 straight years, Jollibee has delivered average quarterly YoY EBITDA, net income

and EPS growth of 12%, 16% and 15%, respectively. In only 8 of the past 48 quarters was

YoY EPS growth negative. Delivering positive earnings growth 83% of the time is

consistency that is difficult, if not impossible, to replicate in the NJA consumer space.

Quarterly EPS growth has been positive for nine consecutive quarters and has averaged

18% YoY. Consumer franchises that can deliver the type of earnings consistency that

Jollibee has can sustain PEG ratios of ~2x.

Figure 8: Jollibee’s earnings growth consistency is irreplaceable in NJA consumer

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2Q

02

4Q

02

2Q

03

4Q

03

2Q

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4Q

04

2Q

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4Q

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4Q

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EBITDA Growth YoY EPS Growth YoY

Source: Company data

Jollibee has posted more than two decades of consistent annual EPS growth. In the past

21 years, Jollibee has only reported YoY decline in EPS on four occasions (1997, 1999,

2001 and 2008).

Consistent EPS growth,

high and rising excess

returns and strong financial

position underpin premium

valuations of strong

consumer franchises

TP of P205 assumes flat

multiples

Jollibee has increased EPS

in 40 of the last 48

quarters…

… and in 17 of the last 21

years

06 December 2013


(JFC.PS / JFC PM) 7

EPS growth has been positive for four consecutive years and we expect this to expand to

eight years with 23% EPS growth in 2013 and then 20% CAGR over the next three years.

Annual EBITDA growth over the next three years is expected to be 16%. While forward

EPS growth should be lower than in 2013, it is materially ahead of historical EPS growth.

Historical precedents of the importance earnings growth consistency has on

valuation

To demonstrate how important strong consumer franchises that can deliver consistent

growth is for valuation, we combed the developed market universe for large-scale

consumer companies that delivered quarterly YoY EPS growth for at least five years and

found eight notable examples. Interestingly, during this period the average PEG ratio

these companies traded at was 2.4x.

Figure 9: Consumer franchises that deliver 5 years (or more) of consistent EPS growth command PEG ratios >2x

Company Avg. PEG Avg. PECurrent

2014E PE

Current PE Relative to

Overall Market

Nestle 3.3x 19.3x 17.8x 1.19x

Starbucks 2.7x 61.9x 30.0x 2.01x

McDonald's Corp 2.6x 20.8x 16.1x 1.08x

Wal-Mart Stores, Inc. 2.5x 28.2x 15.5x 1.04x

PepsiCo, Inc. 2.5x 24.2x 17.6x 1.18x

Procter & Gamble Co. 2.2x 25.2x 19.4x 1.31x

Yum! Brands, Inc. 2.1x 18.3x 21.0x 1.41x

ITC Ltd 1.4x 28.5x 28.8x 1.85x

Nestle India 4.2x 38.5x 33.8x 2.41x

Chipotle Mexican 1.8x 37.6x 40.0x 2.68x

Colgate-Palmolive India 1.1x 25.5x 33.3x 2.38x

Average 2.4x 29.8x 24.8x 1.69x

Jollibee Foods 3.7x 23.7x 33.9x 1.82x

Period of >5yr EPS Growth

2H08 and counting …

3Q2003 - 2Q2009

3Q1997 - 1Q2008

1Q1993 - 3Q1997

1Q1997 - 3Q2009

4Q1999 - 1Q2009

1Q1995 - 2Q2000, 2Q2001 - 1Q2006

3Q2001 - 4Q2012

1Q2009 and counting …

4Q2005 and counting …

1Q2003 - 3Q2011

2Q2006 and counting…

Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013

It is interesting to see from Figure 9 that the three companies still in the midst of a five-

year (or more) trend of consistent earnings growth trade at multiples today that are higher

than the historical average. For Jollibee, ITC Ltd (ITC.BO, Rs313.25, OUTPERFORM, TP

Rs385.00), Nestle India (NEST.BO, Rs5042.4, UNDERPERFORM, TP Rs5,050.00) and

Chipotle Mexican (CMG) one could argue that multiples will be maintained until such a

streak comes to an end. For Jollibee, we do not expect this to happen any time over the

next three years.

Superior excess return story

Simply put, consumer companies that can generate high excess returns (ROIC less

WACC) will command premium valuations (Figure 10). Between the 1st and 2

nd, and 2

nd

and 3rd

quartiles for excess returns of NJA consumer stocks, the valuation declines on

average by 25% and 24%, respectively. The relationship breaks when moving from the 3rd

to 4th quartile because the market is often pricing in recovery returns for companies that do

not cover their cost of capital and/or their earnings estimates are trending down; therefore,

multiples are disproportionately high.

For Jollibee, its excess return currently resides at the top of the 2nd

quartile at 890 bp, but

looking out three years, Jollibee is expected to have one of the highest improvements in

excess returns, so when looking at valuations based on three-year forward excess return

(Figure 11) the relationship holds firmly.

Forecast 21% EPS CAGR

over 2012–16E

Empirical data shows that

strong consumer franchises

can trade at >2x PEG when

earnings growth is

consistent over five years

JFC, ITC, NEST and CMG

are still in the midst of their

5yr+ run of earnings growth

High excess return

consumer companies are

rewarded by the market

Jollibee’s 3yr fwd excess

return delta is among the

highest of domestic and

regional peers

06 December 2013


(JFC.PS / JFC PM) 8

Figure 10: Excess returns are primary driver of valuations NJA consumer average; excess return = ROIC less WACC

Figure 11: 3-year out excess returns is equally compelling NJA consumer average; excess return = ROIC less WACC

23.3

x

18.7

x

16.0

x

18.0

x

16.3

x

11.5

x

9.8

x

10.3

x

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

12mf PE 12mf EV/EBITDA

-20%

+5%

+13%

-14%

-14%-29%

23.7

x

17.9

x

17.4

x

16.6

x16.7

x

10.9

x

10.2

x

10.1

x

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile

12mf PE 12mf EV/EBITDA

-24%

-1%

-5%

-6%

-3%

-35%


Now that it is evident that excess returns are a key driver of valuations for consumer

companies, it is important to see how Jollibee stacks up against its Philippines peers and

regional food service players.

Jollibee has the second highest excess returns behind Puregold Price Club, Inc

(PGOLD.PS), but its excess returns are expected to grow 4-5x faster than PGOLD’s over

the next three years; this justifies the P/E valuation premium. Excluding the dramatic ROIC

increase at Bloomberry due to its casino coming online in 2013, Jollibee’s excess returns

are expected to increase faster (647 bp vs 549 bp) than the Philippines consumer peer

group average. URC is also increasing at a fast rate, which is the key driver to its multiple

being sustained going forward.

Figure 12: ROIC and excess return profile of PH consumer companies

Symbol Company2012

ROIC

2015E

ROIC

2012

Excess

Return

2015E

Excess

Return

3yr

Excess

Return

Change

NFY PENFY

EV/EBITDA

PGOLD.PS Puregold Price Club, Inc 23.2% 24.7% 14.3% 15.8% 150bps 23.3x 23.3x

JFC.PS Jollibee Foods Corporation 14.8% 21.3% 6.6% 13.1% 647bps 33.9x 18.1x

URC.PS Universal Robina Corp. 13.9% 21.8% 3.6% 11.5% 789bps 23.7x 15.6x

AGI.PS Alliance Global Group Inc 9.3% 12.2% 0.9% 3.8% 291bps 12.8x 6.3x

BEL.PS Belle Corporation 1.3% 9.9% -10.0% -1.4% 866bps nmf nmf

BLOOM.PS Bloomberry Resorts Corporation -2.9% 20.6% -14.2% 9.3% 2,355bps 17.7x 12.3x

Average 9.9% 18.4% 0.2% 8.7% 850bps 22.3x 15.1x Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013

Relative to regional foodservice peers, Jollibee also stacks up very favourably in terms of

ROIC and excess return delta over the coming three years. Jollibee’s ROIC is the second

highest behind Jubilant Foodworks (JUBI.BO, Rs1321.5, UNDERPERFORM, TP

Rs895.00), but more importantly is heading in the right direction. Over the next three years,

we expect Jollibee to increase its excess returns by 647 bp versus a decline of 705 bp at

Jubilant. The latter is a function of increased competition and pressure on menu pricing as

a result. In 2015, we expect Jollibee to generate higher excess returns than that of Jubilant,

and this will be a key reason why we think multiple risk is much higher at the latter.

Relative to the peer group, Jollibee is more profitable, and the excess returns are rising at

a superior pace.

Jollibee’s excess returns are

expected to increase 4x

faster than PGOLD but

slightly lower than URC

Jollibee also stacks up very

favourably in terms of ROIC

and change in excess return

relative to regional

foodservice peers

06 December 2013


(JFC.PS / JFC PM) 9

Figure 13: ROIC and excess return profile of NJA foodservice operators

Symbol Company2012

ROIC

2015E

ROIC

2012

Excess

Return

2015

Excess

Return

3yr

Excess

Return

Change

NFY PENFY

EV/EBITDA

JUBI.BO Jubilant Foodworks 30.0% 23.0% 18.0% 11.0% -705bps 46.8x 24.1x

JFC.PS Jollibee Foods Corporation 14.8% 21.3% 6.6% 13.1% 647bps 33.9x 18.1x

1314.HK Tsui Wah Holding 11.4% 25.4% 3.5% 17.5% 1,400bps 35.7x 26.4x

CENT.BK Central Plaza Hotel PCL 8.3% 12.9% -0.1% 4.5% 453bps 23.6x 13.0x

MINT.BK Minor International PCL 7.7% 9.5% -1.1% 0.7% 177bps 21.5x 16.2x

0538.HK Ajisen 4.1% 10.6% -4.0% 2.5% 643bps 23.3x 10.8x

Average 12.7% 17.1% 3.8% 8.2% 449bps 30.8x 18.1x Note: CENTEL and MINT’s food businesses are 57% and 39% of revenues, respectively.

Source: Company data, Credit Suisse estimates *Priced as of Dec 5 2013

Financial prowess

Consumer companies are rewarded in their valuation for maintaining strong financial

stability and maintaining flexibility to capitalise on organic and/or acquisition-driven growth

opportunities.

For the past four years, Jollibee has operated with 20% and 11% of its equity and total

assets on average in net cash while at the same time increasing its asset base by 41%,

store count by 60% and investing a total of P13 bn in capex. This financial flexibility was

rewarded in the earnings base increasing by 73% from P2.7 bn to P4.6 bn in 2013E. The

rewards of free cash flow generation cannot be underestimated.

From 2013E to 2016E, we expect FCF to grow at twice the pace of earnings or 47%

annually versus EPS growth of 21% annually. The difference is largely explained by capex

levels moderating to historical levels in 2015. Over the next two years, more aggressive

expansion in China and Vietnam should push capex to nearly 2x the long-term average.

Nonetheless, we expect Jollibee to maintain net cash to equity and total assets at 23%

and 14% respectively, which is higher than historical averages.

Figure 14: Jollibee financial prowess – power of FCF generation cannot be underestimated All figures in P mn

2009 2010 2011 2012 2013E 2014E 2015E 2016E Historical

CAGR

‘13E – ‘16E

CAGR

Cash flow from operations 6,551 5,315 5,596 8,044 8,217 9,303 10,972 12,042 7.1% 13.6%

Capex (2,575) (2,553) (3,700) (3,756) (5,376) (5,848) (3,048) (3,048)

Acquisitions (835) (2,715) (816) (128)

Gross FCF 3,032 190 (1,738) 4,160 2,841 3,455 7,924 8,994 11.1% 46.8%

Dividends (844) (2,557) (1,197) (2,274) (2,610) (3,221) (4,079) (5,043)

Net FCF 2,188 (2,366) (2,935) 1,886 232 235 3,844 3,951 -4.8% nmf

Net cash 6,181 3,936 1,035 3,421 3,653 3,887 7,732 11,683

Net cash-to-equity 38.0% 22.3% 5.1% 15.6% 15.3% 14.9% 26.8% 36.8%

Source: Company data, Credit Suisse estimates

First, the order of business will be returning cash to shareholders as we assume dividends

grow at 25% annually from 2013E to 2016E. That being said, given the cash on the

balance sheet, there is the potential for positive dividend surprises. The dividend pay-out

ratio could exceed our 75% assumption in 2015.

Second, we believe there is over 50% possibility for a large-scale acquisition in the next

12-24 months. The company is looking to enter the highly appealing Indonesian market by

acquiring a local player(s) in much the same way it did in China and Vietnam. Such an

acquisition could be incremental to ROIC over 2-3 years, and justify deploying the capital.

We believe a new large-scale driver of higher earnings growth over the long term would

clearly be positive for the multiple argument on Jollibee shares.

Free cash flow generation is

vital for consumer

franchises to grow

Jollibee generates enough

FCF to maintain a net cash

balance while increasing its

asset and store base by

41% and 60% since 2009

FCF is expected to grow 2x

faster than earnings over

the next three years

Jollibee’s strong balance

sheet can support positive

dividend surprises

High probability that Jollibee

makes an acquisition in

Indonesia

06 December 2013


(JFC.PS / JFC PM) 10

Maximising returns from existing formats The majority of Jollibee’s EPS growth is expected to be derived from rising EBITDA

margins over the next four years, which essentially translates into extracting greater

productivity from the existing store base of 2,800 and deployed capital base of nearly

US$650 mn.

Figure 15: Attribution of Jollibee’s EPS growth % of total EPS growth coming from SSSG, new stores and EBITDA margins expansion. Figure in bold is YoY EPS growth

26%44% 34% 42%

7%

15% 11% 13%

67%41%

55%

45%


SSSG Store growth EBITDA Margin Expansion

23%

18%

24%

18%

Source: Credit Suisse estimates

Store profitability drives franchise value and

supports valuation

Positive relationship between EBITDA/store and EV/store

Maximising store profitability (commonly measured as EBITDA/store) is critical for

foodservice businesses, as investors tend to reward foodservice businesses that succeed

at increasing EBITDA/store. Figure 16 shows a strong (R-square = 0.99) positive

relationship between EBITDA/store and EV/store for regional and global foodservice

operators. Jollibee is on the trend line, meaning that the market is appropriately paying for

Jollibee’s store/outlet productivity levels. This relationship is exponential, so as profitability

per store increases, EV/store should rise at a quicker rate. This is evident in historical

precedents for both Jollibee and foreign foodservice operators.

The key driver of Jollibee’s growth and valuation will come from leveraging greater

profitability from existing stores. From 2012 to 2016E, we expect EBITDA per store to

increase by 11% annually from US$63,000 to US$96,000.

Rising EBITDA margins

from harvesting existing

assets will be key driver of

EPS growth

Key driver of enterprise

value is productivity—

EBITDA/store

EBITDA/store to increase

11% annually from 2012 to

2016E

06 December 2013



Figure 16: Strong positive relationship between EBITDA/store and EV/store for

foodservice operators 2013E EBITDA/ avg. store (log scale) vs EV/ avg. store, US$ mn

Jollibee

Chipotle

McDonald'sWendy's

Yum!

Jubilant

CDCAjisen

Tsui Wah

Domino's0

5

10

15

20

25

30

35

40

0.0 0.1 1.0

EV

/avg

. sto

re (

US

Dm

)

EBITDA/avg. store (USDm)

R²=0.99


Figure 17: Jollibee has productivity levels in line with

most peers … 2013E EBITDA/ avg. store, US$ mn

Figure 18: …suggesting significant upside potential in

enterprise value as productivity rises 2013E EV/ avg. store, US$ mn

0.030.06 0.07 0.08 0.09 0.09

0.20

0.29

0.42

0.51 0.67 0.88 1.34 1.58 2.46 3.09 3.10

10.90

32.39


Historical precedents show that EBITDA/store growth drives multiple expansion

Figure 19 and Figure 20 break down the growth in EV/store for Chipotle and Yum! Brands,

which have experienced EV/store CAGRs of 33% and 26%, respectively, over the last two

years. For Chipotle, 22% of the EV/store appreciation from 2010-12 was driven by

EBITDA/store CAGR of 8%, with the remaining 78% from multiple expansion of 25%

CAGR. Similarly, for Yum! Brands 39% of EV/store growth was due to EBITDA/store

CAGR of 11%, while 61% was driven by multiple expansion of 15% CAGR.

Developed market

precedents show that when

EBITDA/store rises,

EV/store increases at a

quicker pace

06 December 2013



Figure 19: Chipotle breakdown in EV/store expansion

(2010-12)

Figure 20: Yum! Brands breakdown in EV/store expansion

(2010-12)

$4.43

$0.76

$2.70

$7.89

2010 EV per

store

EV gain - from

higher profit

EV gain - from

multiple

expansion

2012 EV per

store

(in USDm)

8% EBITDA

CAGR

25% multiple

CAGR

$0.56

$0.08

$0.19

$0.82

2010 EV per

store

EV gain - from

higher profit

EV gain - from

multiple

expansion

2012 EV per

store

(in USDm)

7% EBITDA

CAGR

15% multiple

CAGR


From the above examples it is clear that for companies that successfully increase store

profitability in a sustainable manner, valuation increases by an even greater degree. Thus,

the relationship between EBITDA/store and EV/store is not just a linear correlation but an

exponential one, and companies at the early stages of the trend line such as Jollibee have

a lot of incentive to focus on store profitability in order to warrant exponential growth in

enterprise value.

Market has already begun to reward Jollibee’s productivity improvements … more

to come

Jollibee’s per store valuation has increased by 35% in the last two years, triggered by 15%

improvement in store level profitability Figure 21. This confirms our view that investors

respond positively to EBITDA/store growth and suggests that further increases in

productivity for the firm can continue to drive higher shareholder value.

Figure 21: Jollibee’s recent re-rating has been triggered by EBITDA/store improvement Jollibee breakdown in EV/store expansion (2011-current)

$0.87

$0.27

$0.44

$1.58

2011 EV per store EV gain - from higher

profit

EV gain - from multiple

expansion

Current EV per store

(in USDm)

14.5% EBITDA CAGR

20.6% multiple CAGR


Rises in EBITDA/store have

an exponential impact on

enterprise value

Market has already

rewarded JFC’s 15%

increase in EBITDA/store,

but there is more to come

06 December 2013



Jollibee’s path to improved profitability

The key drivers to Jollibee’s store level profitability rising are strong domestic demand and

traffic growth in the Philippines (accounting for 80% of growth going forward), optimising

the format/concept portfolio, achieving greater scale in China, achieving profitability in

SuperFoods Group (Vietnam) and more efficient back-end/IT. We expect these drivers to

lead to 140 bp EBITDA margin expansion over the next four years. Interestingly, our

2016E EBITDA margin forecast of 11.3% is below the 2007 peak of 11.7%. Jollibee is a

superior operator today with more scale, so by capitalising on the existing assets, EBITDA

margin upside potential is a reality.

Optimising brand portfolio in the Philippines

With a portfolio of six brands in the Philippines, Jollibee has a wide exposure to the overall

QSR industry.

Figure 22: JFC’s domestic brand portfolio

Brand Description 2012 Domestic

Sales (P mn)

Number of

stores (3Q13)

% franchised

stores

1 Jollibee American fast food 46,136 795 50.2%

2 Chowking Chinese casual food 11,995 388 60.3%

3 Mang Inasal Filipino casual food 8,304 462 90.3%

4 Greenwich American pizza 4,614 198 38.4%

5 Red Ribbon Bakery 3,691 249 44.2%

6 Burger King American fast food 923 29 0.0%


However, in terms of productivity, sales/store has always been the highest at the Jollibee

brand, which is 61% of domestic system-wide sales (Figure 23). Therefore, growth in

sales/store will be higher at non-Jollibee brands. We expect Jollibee brand sales/store to

increase by 6%/year from 2012 to 2016E versus 11%/year at the other brands combined

(Figure 23).

Jollibee is on the right track as it is actively strengthening the non-Jollibee brands through

advertising and marketing efforts, refurbishing current stores, and introducing new

products. The 2011 acquisition of the Burger King licence in the Philippines will also drive

up store productivity in the long term, as sales productivity for Burger King at P36 mn/store

is the second highest out of Jollibee’s domestic brand portfolio (but currently only 1-2% of

domestic sales).

Figure 23: Domestically, Jollibee format leads in sales

efficiency… Sales/avg. store by brand (2012, P mn) – Domestic sales only

Figure 24: …but we expect both Jollibee and non-Jollibee

stores to improve productivity Sales/avg. store by brand (2011-16E, P mn) – Domestic sales only

60.5

35.530.9

22.718.6 17.6

(PH

Pm

)

56.260.5

64.168.5

72.6 76.9

20.7 23.2 25.1 27.9 31.1 34.7

FY11 FY12 FY13E FY14E FY15E FY16E

(PH

Pm

)

Jollibee sales/avg store

Non-Jollibee sales/avg store


EBITDA margins expected

to expand 140 bp over next

four years with real

possibility of positive

surprises

Six brands in the Philippines

led by the highly popular

Jollibee brand, account for

61% of domestic system-

wide sales

Sales/store at non-Jollibee

brands to grow 2x faster

than Jollibee brand

Burger King stores are very

productive, and will be key

contributor as count rises

06 December 2013



Turnaround story in China

With 15% of outlets and 13% of system-wide sales coming from China, a turnaround in

productivity in the country would have a material impact on overall group productivity.

Jollibee operates 401 stores under three key brands in China – Yonghe King, Hong

Zhuang Yuan and San Ping Wang (acquired in 2012).

Figure 25: JFC’s China brand portfolio

Brand Description 2012 sales (P

mn)

Number of

stores (3Q13)

% franchised

stores

1 Yonghe King Taiwanese casual food 9,227.1 311 2.6%

2 Hong Zhuang Yuan Chinese congee chain 1,845.4 44 2.3%

3 San Pin Wang Chinese noodle chain 922.7 46 2.2%

4 12 Sabu Taiwanese hotpot (48%

owned)

na 3 0%


2012 was a difficult year for China QSR industry as weaker macro led to lower sales

growth yet operating cost inflation was high. 2013 challenges for the industry largely came

from food scares and changes in meal preferences.

Year-to-date, Jollibee’s Chinese trends have improved with SSSG of 8% due to stronger

traffic and less discounting. Jollibee’s formats primarily serve beef & pork based meals, so

benefitted from concerns over poultry by consumers. Jollibee has successfully

repositioned its brands, invested more in product development, renovated old stores and

closed down unproductive stores to drive up sales/store. For example, with Hong Zhuang

Yuan, the group closed six foodservices in 2012 and remodelled eight, with the newly

modelled foodservices achieving higher average daily sales and double-digit sales growth.

We view Jollibee’s commitment to increasing efficiency and productivity in its China outlets

as positive for the firm’s sustainability in the country in the long term. The company’s low

franchise rate in China also gives it more control in terms of positioning and expanding the

brands and efficiently executing turnarounds.

With stronger comp store growth coupled with ~40 new stores per year, we believe the

Chinese operations can sustain 25% total growth in coming years.

Inflection point of margin expansion

With sales/store improving across the different brands and regions, margin expansion will

be a factor of positive operating leverage through scale

Figure 26 and Figure 27 break down our FY2013-16E forecasts for Jollibee’s system-wide

sales. Geographically, we forecast domestic sales/store to increase at an 8% CAGR from

2013 to 2016, and international sales/store at 5.7% CAGR over the same time period. In

terms of store type, we forecast both company-owned and franchise sales/store to grow at

steady rates of 7% and 8% p.a., respectively, for the next three years. This leads to

system-wide sales/store 2013-2016 CAGR of 7.7%, an acceleration from the last two

years.

Stronger trends in China will

have a material impact on

overall JFC earnings

SSSG trends in China have

strengthened to high single-

digits and are ahead of

foreign competitors

Strong commitment to

Chinese market

Jollibee’s China operations

can sustain 25% total

growth

Scale benefits still to be

reaped from the multiple

brands and markets

06 December 2013



Figure 26: Domestic sales/store acceleration driving

growth in system-wide sales per store Jollibee sales per avg. store (by region), 2011-16E

Figure 27: Both company-owned and franchised stores

expected to increase productivity Jollibee sales per avg. store (by store type), 2011-16E

30

35

40

45

50


Domestic sales per avg. store (PHPm)

Intl sales per avg. store (PHPm)

Systemwide sales per avg. store (PHPm)

30

35

40

45

50

FY11 FY12 FY13E FY14E FY15E FY16E

Systemwide sales per avg. store (PHPm)

Company-owned sales per avg. store (PHPm)

Franchised stores sales per avg. store (PHPm)


From 2009 to 2012, Jollibee’s gross, EBITDA and EBIT margins deteriorated by 220 bp,

130 bp and 80 bp, respectively. This was primarily due to COGS (food supplies,

packaging, store and manufacturing costs) growing faster than revenue. The negative

trend has been reversed and should be sustained because raw material inflation has been

less than 1%. Jollibee only imports ~20% of its raw materials. So when combined with

higher store productivity, margins will benefit. We forecast Jollibee’s gross, EBITDA and

EBIT margins to expand by 192 bp, 134 bp and 215 bp from 2012 to 2016 (Figure 28),

resulting in EBITDA/store three-year forward CAGR of 11%. The positive relationship

between EBITDA/store and valuation implies material upside for Jollibee’s enterprise

value.

Figure 28: Margin expansion has commenced…. Jollibee margins, 2011-2015E

Figure 29: …leading to improvement in store profitability

relative to regional peers EBITDA/avg. store (US$ mn) , 2011-2015E

17.8% 17.8% 18.3% 18.7%19.3% 19.7%

10.1% 9.9% 10.6% 10.8% 11.2% 11.3%

6.2% 6.1% 6.8% 7.2% 7.9%

8.3%

2011 2012 2013E 2014E 2015E 2016E

Gross margin EBITDA margin EBIT margin

0.070.07 0.08

0.080.09

0.12

0.06

0.09

0.11

0.13

0.08

0.09

0.09

0.080.08

2011 2012 2013E 2014E 2015E

Jollibee Ajisen Jubilant


Cost inflation is benign and

only ~20% of RMs are

imported

06 December 2013



SuperFoods Group JV—Vietnam exposure

Figure 30: JFC’s 2012 investment in SuperFoods Group

Jollibee Group

(through Jolliee

Worldwide Pte Ltd)

Viet Thai

International

SuperFoods Group

US$35m loan

50%

Highlands Coffee

-75 coffee shops as

of 2012-Highlands Coffee

Packaged Products

Pho 24

-62 restaurants as of

2012-Presence in HK,

Japan and ASEAN

Hard Rock Cafe

(Macau, HK, and

Vietnam franchise)-3 outlets as of 2012

50%


Joint venture with Viet Thai International

On January 20 2012, JFC acquired a 50% stake in SuperFoods Group for US$25 mn

through an agreement with its joint venture partner Viet Thai International Joint Stock

Company (VTI). SuperFoods owns and operates Highland Coffee Shops in Vietnam, Hard

Rock Café franchises in Macau, Hong Kong and Vietnam, and Pho 24 foodservices in

Vietnam, Indonesia, Philippines, Hong Kong, Cambodia and Japan. It also sells packaged

coffee under the Highlands brand through retail outlets.

The Framework Agreement included a US$35 mn loan to VTI and a US$5 mn advance to

SuperFoods Group. The US$35 mn loan to VTI is payable in June 2016 and bears interest

of 5% p.a. payable in lump sum also in June 2016. The loan is to be used for general

corporate purposes and is secured by a mortgage by all of VTI’s shares in SuperFood

Holding Companies.

Buying exposure to fastest growing QSR market in APAC at a reasonable price

SuperFood’s presence in Vietnam is a key growth driver for JFC over the long term, as it

provides JFC exposure to not just the large coffee market but also to the fast-growing

Vietnamese QSR industry, which is forecasted to grow at 14.3% p.a. over the next five

years (highest in APAC). JFC also plans on serving Highlands Coffee in its own outlets to

upgrade the quality of its coffee at what we would imagine more favourable margins.

Implied P/B for SuperFoods based on the purchase price was around 1.59x (using 2012

book value). Implied EV/store was US$0.4 mn/store, which was a 54% discount to JFC’s

EV/store at the time of purchase. Granted, SuperFoods Group is still operating at a net

loss, and the 2012 impact on JFC’s bottom line was negative P51 mn (albeit only 1.4% of

group net income), this is partially due to increasing store costs while accelerating store

expansion growth (Highlands Coffee store growth was 39% in 2012). Expanding market

share and regional presence is the priority right now and we expect SuperFoods to break

even by 2015 due to increasing scale and moderating costs.

Jollibee has optionality on

Vietnam through attractive

investment in SuperFoods

Vietnam expected to be

fastest growing QSR

industry in APAC

Acquired the stake for 50%

discount to JFC valuation at

the time

06 December 2013



Indonesia offers the next leg of upside

Indonesia is the most attractive foodservice industry in Asia given its size, future growth

and potential for modernisation, yet Jollibee does not have a single foodservice outlet in

this market. We believe within the next two years (likely in 2014), Jollibee will announce its

intention to enter Indonesia, or better yet, acquire an existing player.

Jollibee’s overriding strategy is to use the Jollibee format in markets where there is a large

number of Overseas Filipino Workers (OFWs) who can associate with the brand and its

food. For Indonesia, it is estimated that there are less than 10,000 OFWs, so it is unlikely

that Jollibee will use this format for expansion. To put that in perspective, as of the end of

2012, there were 160,000, 120,000 and 51,000 OFWs in Singapore, Hong Kong and

Malaysia, respectively, and where the company has two Jollibee formats combined. The

Singapore Jollibee foodservice is the most productive globally and Hong Kong is not too

far behind. Malaysia is a market where the company could enter Kuala Lumpur with its first

Jollibee store sometime in 2014.

As we mentioned earlier, Indonesia’s foodservice and QSR industries are expected to

grow at 9% and 12% annually going forward. Penetration rates today are low with 800 and

20 foodservice and QSR outlets per 1,000 people, respectively. QSR spending per capita

is the second lowest in the region at only US$7/year. If we assume Indonesia reaches the

same level of penetration as the Philippines over the next seven years, this would imply a

total of 15,000 QSR locations versus 5,200 in 2012 or 13% CAGR. This would be on the

back of QSR per capita spending more than quadrupling from US$7 annually to US$30

annually.

Indonesia is a foodservice and QSR market simply too enticing for an experienced and

cash rich operator like Jollibee to ignore. We believe 2014 could be the year Jollibee

makes its long awaited foray into Indonesia, and this will likely be accretive to EPS within

the next two years and lead to earnings upgrades. The market is not pricing in this

possibility, in our view.

Indonesia QSR profile

The QSR industry in Indonesia is heavily fragmented with more than 5,500 locations, yet

the largest player KFC (PT Fast Food Indonesia Tbk is the master franchisee) has only

12% of the outlets. Chain QSRs dominate the industry over the independents with 83% of

sales, and this is expected to increase going forward.

Asian fast food is the leading format in Indonesia followed by chicken-based fast food.

Western-style QSR concepts (burgers, pizza) have the potential to post the highest growth

rates given their extremely low penetration today. A typical Indonesian meal would

comprise of steamed rice, one or two main dishes such as meat, fish, poultry or vegetable

served together with sides. This preference lends itself to Asian and chicken QSR

concepts. But as wealth changes so do preferences, so we would not be surprised to see

western style QSR concepts continuing to capture market share.

High probability that Jollibee

enters Indonesia in 2014 or

2015

Jollibee banner not likely to

work in Indonesia, so

acquisition is preferred route

Indonesians only spend

US$7/year on QSR vs NJA

average of US$137

Share price does not reflect

the Indonesia possibility

KFC is the largest in

Indonesia with 12% of all

QSR outlets

06 December 2013



Figure 31: Indonesian QSR dominated by chains … Sales figures in Rp tn

Figure 32: … while chicken and western style QSR

concepts have been gaining share Sales figures in Rp tn

8 9 10 1112 14

15 1622

23

33

3

4

74%

76%

78%

80%

82%

84%

86%

0

5

10

15

20

25 Independent QSR Sales

Chain QSR Sales

% Chain QSR

3 4 4 5 5 5 6 7

77

89

1011

1213

29%

30%

30%

31%

31%

32%

32%

33%

33%

34%

34%

0

5

10

15

20

25 Chicken QSR Sales

Other QSR Sales

% Chicken QSR

Source: Frost & Sullivan Source: Frost & Sullivan

The top 12 players in the industry control 62% of the outlets, with the largest, KFC,

controlling 12%. Chicken and western style QSR are more concentrated because they are

relatively new, while Asian QSR is more fragmented with a large number of independent

players. KFC controls 50% of the chicken QSR outlets followed by California Fried

Chicken at 27%. In terms of pricing, not surprisingly the chicken and western QSR formats

have higher average meal and average ticket values.

Figure 33: Leading chain QSR operators in Indonesia

Chain QSR Brand Franchisee Format # of Outlets Market Share by Outlet

Kentucky Fried Chicken (KFC) PT Fast Food Indonesia Tbk Chicken 446 12.1%

California Fried Chicken PT Pioneerindo Gourmet International Tbk Chicken 244 6.6%

Baskin Robbins PT Trans Ice Ice Cream 219 5.9%

Pizza Hut PT Sarimelati Kencana Pizza & Pasta 207 5.6%

Dunkin' Donuts Dunkin' Donuts Indonesia Bakery 200 5.4%

A&W PT Biru Fastfood Nusantara Burger & Fries 200 5.4%

Es Teler 77 PT Top Food Indonesia Asian 180 4.9%

Ayam Bakar Wong Solo Various Franchisees Asian 160 4.3%

Hoka Hoka Bento PT Eka Bogainti Asian 150 4.1%

Texas Chicken PT Cipta Selera Murni Chicken 140 3.8%

McDonald's PT Rekso Nasional Food Burger & Fries 124 3.4%

Burger King PT Mitra Adiperkasa Tbk Burger & Fries 40 1.1%

Top 12 2,310 62.4%

Source: Company data, Frost & Sullivan

Jollibee’s Indonesian opportunity

We believe Jollibee’s preference would be to replicate what it did in China and Vietnam by

acquiring an existing QSR operator in Indonesia given the following rationale:

■ Access to the highly attractive market size and growth;

■ An existing brand/concept that appeals to the unique meal preferences of

Indonesians;

■ Filipino Peso relative to Indonesian Rupiah is near all-time highs;

Asian food QSRs are

popular in Indonesia

Plenty of rational for Jollibee

to be an acquirer in

Indonesia

06 December 2013



■ Utilise operating, financial and technology scale to growth the chain at a much faster

rate;

■ Acquisition capacity of P25 bn (US$570 mn) assuming 3x net debt-to-EBITDA.

Having completed seven acquisitions since 2008 (Figure 34Error! Reference source not

found.), Jollibee has shown a knack for making acquisitions, especially in acquiring local

brands/concepts in foreign markets such as China and Vietnam. As we mentioned earlier,

with capacity of at least US$600 mn and existing operations generating positive cash flow

going forward, we believe management is highly motivated to buy assets in Indonesia

sooner rather than later. Management has mentioned it is difficult to get families to sell

their businesses in Indonesia, but with time and capital, this can often be overcome.

We have reason to believe that the Burger King master franchise is for sale. It is currently

owned by Mitra Adiperkasa (MAPI.JK, Rp5,350.00, NEUTRAL, TP Rp7,300.00) and they

have 40 outlets. MAPI has not invested aggressively behind this format and could use the

capital to pay down debt levels. If we assume the Burger King stores in Indonesia are 10-

15% less productive than Jollibee’s Burger King stores in the Philippines and an EV/Sales

multiple of 1.5-2x, then this acquisition would likely cost US$45-50 mn or P2 bn, well within

Jollibee’s capacity.

Acquiring the master franchise rights to Burger King Indonesia is an interesting start and

consistent with owning the same rights in the Philippines, but the more interesting and

earnings impactful acquisition could come from acquiring the local operators such as

California Fried Chicken, Es Teler 77, Ayam Bakar Wong Solo and/or Hoka Hoka Bento.

These businesses would be equally scalable, likely more profitable currently than Burger

King and have formats/concepts that resonate well with Indonesian preferences.

Jollibee has at least US$600

mn of acquisition capacity

Burger King master

franchise could be of

interest to Jollibee …

… but likely looking for

something larger as well

0

6 D

ec

em

ber 2

01

3

Jo

llibe

e F

oo

ds

Co

rpo

ratio

n

(JF

C.P

S / J

FC

PM

) 2

0

Figure 34: Jollibee acquisition history—buying local brands in foreign markets

Company Name Year

Acquired

% stake Price paid

(P mn)

Valuation Country Key brands/description Rationale

SuperFoods Group 2012 50% 1,025 1.6x 2012 P/B Vietnam Highlands Coffee: Coffee shop chain in

Vietnam and producer of packaged coffee;

Hard Rock Café: franchisee in Macau,

Hong Kong and Vietnam

To expand presence in Vietnam, serve

Highlands Coffee within JFC restaurants to

upgrade coffee quality at still affordable

prices

Wowprime 2012 48% 98 N/A Taiwan 12 Sabu: hotpot restaurant in Taiwan

known for low-priced hot dishes

To expand QSR exposure in Taiwan

San Ping Wang 2012 55% 196 12.2x 2012 P/E; 4.2x

2012 P/B

China San Ping Wang: beef noodle business in

South China

To expand QSR exposure in China

BK Group (Burger King

Philippines)

2011 54% 66 0.6x 2011 P/B Philippines Burger King: Sole franchisee of the brand in

the Philippines

To gain presence in premium price segment

of hamburger category in fast food market

Chow Fun Holdings 2011 80.55% (from

13.89%)

140 8x 2011 P/B USA Jinja Bar and Bistro: Asian casual

restaurant chain in New Mexico, USA

To enhance capability in developing Asian

restaurant concepts for mainstream

consumers in the USA

Mang Inasal 2010 70% 2,976 15.3x 2010 P/E; 3.1x

2010 P/B

Philippines Mang Inasal: Filipino fast food Apply JFC's scale and know-how to increase

Mang Inasal's sales, store network, and

operational efficiency

Hong Zhuang Yuan 2008 100% 2,648 17.6x 2008 P/B China Hong Zhuang Yuan: congee chain

restaurant in China

To expand QSR exposure in China, to be

leader in category between fast casual and

casual restaurants


06 December 2013



Capitalising on the best growth markets The foodservice industry is underpenetrated in emerging Asia, as category spending per

capita in the region is 85% lower than that of developed Asia. The reason behind the

disproportionately lower spending levels is significantly lower GDP/capita, wealth levels and

urbanisation rates. This is set to change as urbanisation and wealth in emerging Asia is

projected to grow ahead of developed peers, leading to accelerating consumption growth

and upside potential for the foodservice industry. The foodservices market size in emerging

Asia is expected grow 7.1% CAGR over the next five years, compared to a 1.5% CAGR for

developed Asia. Jollibee is well positioned to benefit from accelerated spending in the region

as it has 79% of outlets in the Philippines and 15% in China, with optionality in Vietnam.

Increasing outlet penetration drives spending per

capita … but not in all markets

There is a direct linear relationship between total foodservice market size and number of

foodservice outlets, but the relationship between per capita spending vs outlets per capita

is slightly more complicated. Saturation can start to occur at 8-10 outlets per 1,000 people,

but the only Asian market seeing this potentially is Korea (Figure 35 and Figure 36). For

countries oversaturated with QSR outlets, incremental sales per outlet starts to decline for

reasons such as cannibalisation, consumers upgrading to different dining formats, etc.

Nevertheless, countries at the start of the curve will still experience acceleration in food

service spending/capita as outlets/capita rise due to under-penetration.

Thus, industry growth can be broken down to two types:

(1) Outlet-driven growth: Increase in spending per capita due to higher penetration of outlets.

(2) Narrowing the gap: In countries such as China where the market is at risk of being

saturated relative to demand (hence lying below the curve), more outlets/capita will not

drive incremental spending growth. Instead, demand will have to catch up and “narrow

the gap” and this will be due more to factors such as urbanisation and discretionary

income growth.

Figure 35: Philippines, China and Vietnam below the curve in food service spending per

capita relative to outlet penetration Food service outlets/1,000 persons vs food service spending/capita (USD), 2012. Red markers denote markets where Jollibee is present

Philippines

China

Hong Kong

IndiaIndonesia

Japan

Malaysia

Singapore

South Korea

Thailand Vietnam

Australia

Russia

Brazil

USA

France

Germany

UK

0

500

1,000

1,500

2,000

2,500

0 2 4 6 8 10 12

Fo

od

serv

ice s

pend

ing

/cap

ita (

US

D)

Food service outlets/1,000 persons

R²=0.23

Source: World Bank, Euromonitor

Key drivers of foodservice

penetration are incomes,

wealth and urbanisation

Outlet expansion is the

leading driver of higher per

capita spending on

foodservice

06 December 2013



Figure 36: Fast food spending per capita relative to outlet penetration is similarly low in

emerging Asian countries Fast food outlets/1,000 persons vs fast food spending/capita (US$), 2012. Red markers denote markets where Jollibee is present

Philippines China

Hong Kong

IndiaIndonesia

Japan

Malaysia

SingaporeSouth Korea

Thailand

Vietnam

Australia

Russia

Brazil

USA

France

Germany

UK

0

100

200

300

400

500

600

700

0.0 0.2 0.4 0.6 0.8 1.0 1.2

Fast

foo

d s

pend

ing

/cap

ita (

US

D)

Fast food outlets/1,000 persons

R²=0.38


With the exception of China, foodservice outlets in emerging Asia are underpenetrated

Compared to developed Asian markets such as Australia, Japan, Hong Kong and

Singapore, penetration of total foodservice outlets and fast food outlets in emerging Asia is

54% and 59% lower respectively (Figure 37 and Figure 38). The only exceptions are

Vietnam and China, where the high penetration of food service outlets despite lower

spending/capita can be attributed to highly penetrated street stalls segment (although fast

food outlet penetration in Vietnam remains low). Not surprisingly, the under-penetration in

the region is reflected by lower spending per capita, as spending on foodservices

(cafes/bars, full service foodservices, fast food, street stalls, etc) per capita in developing

markets is 85% lower on average. In the Philippines, where Jollibee has 79% of its stores,

foodservice spending per capita each year is the second lowest in the region at only

US$100 (Figure 39).

Figure 37: Foodservice outlets underpenetrated in most

emerging countries… Foodservice outlets/ 1,000 persons, 2012. Red bars denote markets where Jollibee is present

Figure 38: …with fast food outlet penetration following a

similar trend Fast food outlets/ 1,000 persons, 2012. Red bars denote markets where Jollibee is present

11.9

6.2 5.85.2 4.9

2.9 2.0 2.0 1.61.1 0.8 0.8

Avg: 3.8

1.2

1.0

0.8

0.6

0.4

0.3 0.20.110.09

0.060.060.02

Avg: 0.4

Source: World Bank, Euromonitor Source: World Bank, Euromonitor

Foodservice outlet

penetration and spending

per capital are 54% and

85% lower in EM Asia than

DM Asia

06 December 2013



Figure 39: Strong divergence in foodservice

spending/capita between developed and developing

markets Foodservice spending/capita (US$), 2012. Red bars denote markets where Jollibee is present

Figure 40: Fast food spending/capita in emerging markets

similarly underpenetrated Fast food spending/capita (US$), 2012. Red bars denote markets where Jollibee is present

2,1332,037

1,678

1,444

1,225

375 342 340 328158 100 76

Avg: 853

649

392

319

168 159

7948 38 30 12 7 5

Avg: 159

Source: World Bank, Euromonitor Source: World Bank, Euromonitor

Rising wealth and urbanisation key drivers to outlet

and spending growth

The key factors driving accelerating growth in the NJA foodservice industry will be rising

urbanisation and wealth, as there is a clear positive relationship between foodservice

spending per capita and both urbanisation rate and wealth per adult.

The income effect

There is a strong positive correlation between both foodservice spending/capita and fast

food spending/capita with GDP per capita (Figure 41 and Figure 42). Developing countries

in Asia are all clustered in the bottom left corner of the chart, with low levels of both

spending and GDP per capita, but as nations get wealthier and per capita income

increases, spending per capita also starts to increase. Thus, a key driver of rising

spending per capita in the food service industry for emerging countries (where Jollibee is

present) will be GDP/capita growth.

Incomes in Jollibee’s core

markets are expected to

grow by 8% p.a. on average

over the next five years

06 December 2013



Figure 41: GDP per capita highly correlated to not only food service spending per

capita…. Foodservice spending/capita/annum (US$) vs GDP per capita (US$). Red markers denote markets where Jollibee is present

AustraliaJapan

Hong Kong


VietnamMalaysiaCN

THIndonesia

PhilippinesIndia0

500

1,000

1,500

2,000

2,500

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Fo

od

serv

ice s

pend

ing

per

cap

ita

(US

D)

GDP per capita (USD)

R²=0.91


Figure 42: ….but also fast food spending per capita Fast food spending/capita/annum (US$) vs GDP per capita (US$). Red markers denote markets where Jollibee is present

Australia

Japan

Hong Kong


VN

Malaysia

China

THIndonesia

PHIN

0

100

200

300

400

500

600

700

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Fast

foo

d s

pe

nd

ing

/cap

ita (

US

D)

GDP per capita (USD)

R²=0.83


Figure 43 highlights the positive relationship between foodservice spending per capita and wealth per adult for emerging and developed countries globally. Low foodservices consumption in emerging Asia is also explained by significantly lower wealth per adult in the region, as average wealth per adult in emerging Asia is only 5.5% that of average wealth per adult in more developed Asia (Japan, Hong Kong, South Korea, Singapore, Australia). As per the Credit Suisse Global Wealth Report 2013, Credit Suisse expects the pace of wealth generation in emerging markets to continue to be greater than that of developed markets, with wealth growing by a 9% CAGR over 2013-18 for global emerging markets against 6% CAGR for developed markets. In particular, China is expected to be the fastest growing at 10% over the next five years. Accelerating wealth growth in emerging Asia over the next few years makes a convincing case that foodservice consumption in the region has significant growth potential.

Emerging Asia’s wealth

growth expected to

accelerate in coming years

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=805663460&serialid=UJHEWkYWCaFKIBrUd1xLnSHd9vNiNxHx9zrOs5unlPA%3d

06 December 2013



Figure 43: Rising wealth per adult correlated with higher food service spending/capita…. Foodservice spending/capita/annum (US$) vs Wealth per adult (US$). Red markers denote markets where Jollibee is present

PH

CN

Hong Kong

ININDO

Japan

MY


TH

VN

Australia

Brazil

USA

France

Germany

United Kingdom

0

500

1,000

1,500

2,000

2,500

-50,000 50,000 150,000 250,000 350,000 450,000

Fo

od

se

rvic

e s

pe

nd

ing

pe

r cap

ita

(US

D)

Wealth per adult (USD)

R²=0.68


The relationship with fast food spending is even stronger (to the detriment of wealthy countries’ waistlines) as Figure 44 highlights. Except for China, emerging Asian countries lie below the trend line, meaning that fast food spending relative to wealth is disproportionality low and leaves lots of room for “catch-up”. This supports our belief that the fast food industry remains underpenetrated in the region and significant upside exists from closing the gap.

Figure 44: …as well as higher fast food spending/capita Fast food spending/capita/annum (US$) vs Wealth per adult (US$). Red markers denote markets where Jollibee is present

PH

China

Hong Kong

India

Indonesia

Japan

Malaysia

Singapore

South Korea

Vietnam

Australia

Brazil

USA

FranceGermany

UK

0

100

200

300

400

500

600

700

0 100,000 200,000 300,000 400,000

Fast

foo

d s

pend

ing

/cap

ita (

US

D)

Wealth per adult (USD)

R²=0.71


Fast food and urbanisation go together like burgers and fries

As urbanisation rises, penetration of fast food outlets increases and this drives per capita

spending toward fast food (Figure 45 and Figure 46). Urbanisation remains below 50% for

emerging Asian countries. There is still significant spending/capita upside as urbanisation

rates in developed countries can reach 80-100%. In the Credit Suisse report, Opportunities in

an urbanizing world, CS estimates Non-Japan Asia will urbanise from 40% of its population in

2010 to 63% in 2050, and that the region is closest to the urbanisation per capita GDP growth

sweet-spot, where countries achieve peak real GDP/capita growth of close to 6% when

urbanisation is in the range of 30-50%. As urbanisation and GDP/capita increase in NJA in the

next few years, food services consumption should also accordingly accelerate.

Fast food spending in

emerging Asia is

disproportionately low

relative to wealth

There is an exponential

relationship between

urbanisation rate and food

service spending/capita

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=959339251&serialid=lhy3zFa6gjfeR7X%2b7ZsW%2bRX1cVSNIxe8n5%2beG7Kfdx4%3d

https://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=959339251&serialid=lhy3zFa6gjfeR7X%2b7ZsW%2bRX1cVSNIxe8n5%2beG7Kfdx4%3d

06 December 2013



Jollibee’s core markets (the Philippines, China and Vietnam) are expected to see urbanisation

increase from an average of 42% currently to 67% in 2050, higher than the regional average.

Figure 45: Foodservice spending/capita accelerates as urbanisation rates rise Foodservice spending/capita/annum (US$) vs urban population as % of total. Red markers denote markets where Jollibee is present

Phlippines

China

Hong Kong

India Indonesia

Japan

Malaysia

Singapore

South Korea

ThailandVietnam

Australia

Russia

Brazil

USA

France

Germany

United Kingdom

0

500

1,000

1,500

2,000

2,500

0.0 20.0 40.0 60.0 80.0 100.0 120.0

Fo

od

se

rvic

e s

pe

nd

ing

pe

r cap

ita

(US

D)

Urban population as % of total

R²=0.62


Figure 46: Fast food spending/capita accelerates as urbanisation rates rise Fast food spending/capita/annum (US$) vs Urban population as % of total. Red markers denote markets where Jollibee is present

Philippines

China

Hong Kong

India

Indonesia

Japan

Malaysia

Singapore

South Korea

Thailand

Vietnam

Australia

Russia

Brazil

USA

FranceGermany

UK

0

100

200

300

400

500

600

700

30 40 50 60 70 80 90 100

Fast

foo

d s

pe

nd

ing

/cap

ita (

US

D)

Urban population as % of total

R²=0.71


Jollibee well positioned in countries with high

growth potential

With 79% of outlets in the Philippines and 15% in China, Jollibee has significant exposure to countries where growth potential in the foodservice industry is the highest. Figure 47 shows historical and forward CAGR in the foodservice industry. In the past five years, China’s foodservice market size has grown the fastest at 17.4% CAGR and is projected to see 8.9% CAGR over 2012-17, which is the third highest in Asia. The Philippines is also expected to grow at an above-average CAGR of 5.3% over the next five years, although we believe growth rates could be even higher as wealth growth in the country is expected

The Philippines, China and

Vietnam have low

urbanisation rates of 49%,

47% and 30%, respectively

China foodservice to

maintain high level of

growth, but the Philippines

presents best upside

surprise potential

06 December 2013



to be the highest in the region (Figure 49) and we expect private consumption expenditure growth to continue to exceed the NJA and ASEAN average over the next two years.

Jollibee also has 40 outlets in Vietnam (as of 3Q2013) plus its SuperFoods Group JV, where the food service industry is projected to grow at 9.4% CAGR over the next five years, the highest in the region. Further expansion in Vietnam should be a promising long-term growth driver in addition to growth in the Philippines and China.

Figure 47: Projected growth rates for the foodservice industry highest in Vietnam,

Indonesia and China Foodservice industry 5Y historical CAGR vs 5Y forward CAGR

5.7%

-2.4%

7.4%

3.4%

4.7%

6.9%

7.2%

6.2%

6.8%

17.4%

7.2%

6.1%

-3.6%

1.5%

2.3%

3.3%

4.0%

4.2%

5.0%

5.3%

7.9%

8.9%

9.0%

9.4%

Japan

South Korea

Australia

Hong Kong

Thailand

Singapore

Malaysia

Philippines

India

China

Indonesia

Vietnam

5Y forward CAGR 5Y historical CAGR

Source: Euromonitor

Fast food growth rates are expected to outpace those of the overall foodservice industry (Figure 48). This is because the former is more underpenetrated.

Figure 48: Fast food industry to grow faster than overall foodservice industry Fast food industry 5Y historical CAGR vs 5Y forward CAGR

10.6%

9.6%

10.6%

5.8%

3.5%

6.4%

13.7%

9.8%

9.1%

15.8%

17.7%

10.8%

11.5%

-1.5%

3.2%

4.5%

5.2%

5.4%

5.9%

6.1%

6.9%

8.5%

9.0%

9.3%

12.0%

14.3%

Japan

Australia

Singapore

Taiwan

South Korea

Hong Kong

Malaysia

Philippines

India

Thailand

China

Indonesia

Vietnam

5Y forward CAGR 5Y historical CAGR

Source: Euromonitor

In terms of income and urbanisation growth, Jollibee also has exposure to countries with

above-average income and urban population growth, and as higher income and

urbanisation are correlated to higher fast food spending per capita, this should drive

significant upside potential in sales over the next few years. Figure 49 shows that the

Philippines and China -- Jollibee’s biggest markets – have had the highest growth rates in

wealth per adult over the last three years. Going forward, GDP per capita growth is

expected to be the highest in Vietnam and China, which is positive for Jollibee's expansion

plans in these countries (Figure 50). Philippines’ forward GDP per capita growth is also

above average in the region at 7% p.a. The pace of urbanisation is projected to be the

fastest in Vietnam (Figure 51), where Jollibee has not only 40 Jollibee stores but also a

Jollibee has optionality in the highest growth market in the region

Fast food format trends are

stronger due to low

penetration

06 December 2013



joint venture, showing that it is investing heavily in areas of high growth potential as it

seeks to expand regionally.

Figure 49: High wealth growth in the Philippines and

China to drive foodservice spending Wealth per adult, 2010-13 CAGR (US$)

Figure 50: Vietnam, China and the Philippines have

among the highest forward GDP per capita growth –

positive implications for Jollibee GDP per capita historical vs forward growth

-3.9%

-3.3%

-1.3%

1.4%

1.5%

1.6%

1.7%

4.4%

5.6%

5.8%

6.1%

6.9%

14.2%

India

Taiwan

Japan

Indonesia

Malaysia

Vietnam

South Korea

Thailand

Singapore

Hong Kong

Australia

China

Philippines

14%

20%

10%12%

4%

10%

16%

10%

9% 8%7% 7% 6%

4%3% 3%

7yr historical CAGR 5yr forward CAGR

Source: Credit Suisse Global Wealth Report 2013 Source: IMF

Figure 51: Urbanising populations to drive Jollibee’s store and topline growth Change in % of population urbanised, 2010-50E (%), ranked by highest to lowest change

72

50

49

44

40

30

47

34

30

88

69

69

66

63

54

73

60

59

Malaysia

World

Philippines

Indonesia

Non-Japan Asia

India

China

Thailand

Vietnam

% population urbanized 2050E % population urbanized 2010

Source: United Nations, Credit Suisse Emerging Market Research Institute

Competitive landscape

Domestic segment: Resilience at the top

Jollibee is the biggest player in the Philippine QSR industry, with a portfolio of six brands

(Jollibee, Greenwich Pizza, Red Ribbon, Chowking, Burger King and Mang Inasal) and a

market share of 58% (Figure 52). The company’s leading position domestically is a rare

success story considering that in almost every APAC country, the top two players in the

QSR industry are either McDonald’s or Yum! Brands. Management’s success at execution

and growing its portfolio has led to continued resilience in market share, with 3x the

market share of #2 McDonald’s (Figure 53). While the company has lost ~30 bp share to

Philippines is one of very

few EMs where the leader is

local rather than McDonald’s

or YUM! Brands

06 December 2013



McDonald’s in the last two years, we are not too concerned as Jollibee’s sales and store

network remains 3.2x and 5.6x bigger than McDonald's, respectively.

Figure 52: Jollibee is the indisputable leader in the

Philippine QSR industry… Philippine QSR market share breakdown, 2012 (by value)

Figure 53: …with market share trends quite stable JFC vs key competitors 2007-2012 market share

Jollibee

Foods Corp

58.1%McDonald'

s Corp

18.4%

Yum!

Brands

4.5%

Seven & I

Holdings

2.0%

Pancake

House

1.5%

Pier One

Bar & Grill

1.1%

Other

14.4%

2012 Philippines QSR market size

USD 2.9bn

0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009 2010 2011 2012

Jollibee Foods CorpMcDonald's CorpYum! Brands IncSeven & I Holdings Co Ltd

Source: Euromonitor Source: Euromonitor

Jollibee’s product range remains the broadest, serving not just American, Chinese and

Filipino fast food but also cakes and confectionary. Productivity also ranks high on the

scale as the company has the third highest sales/store among the top 15 QSR players—if

we only look at the Jollibee brand, sales/store would be the highest in the industry.

We believe the consistent dominance in store count, sales productivity and absolute sales

more than offset the slight drop in market share in 2012. The list below also highlights some

smaller QSR chains that are gaining share in the Philippines—Pier One Bar & Grill, Bon

Chon and Dairy Queen should be interesting chains to watch out for over the next few years.

06 December 2013



Figure 54: Snapshot of Philippines QSR key players (ranked by market share)

Company name Key products/brands 2012

retail

sales

(US$ mn)

Number of

stores (end-

2012)

Sales/store

(US$)

2012 market

share (%)

2012 market

share

gain/(loss)

(p.p.)

1 Jollibee Foods Corp Western, Chinese and Filipino fast

food, bakery (Jollibee, Greenwich

Pizza, Chowking, Red Ribbon,

Mang Inasal, Burger King)

$1,672 2,074 $805,931 58.1% (0.3)

2 McDonald's Corp American fast food $530 370 $1,432,973 18.4% 0.6

3 Yum! Brands American fast food (KFC, Taco Bell,

Pizza Hut)

$129 386 $333,679 4.5% 0.0

4 Seven & I Holdings Western and Filipino fast food at 7-

Eleven locations

$59 829 $70,808 2.0% 0.0

5 Pancake House Inc Western and Filipino food (Pancake

House, Dencio's, Singkit, Teriyaki

Boy, Kabisera, Le Coeur de France,

Sizzlin'Pepper Steak)

$43 174 $248,851 1.5% 0.0

6 Pier One Bar & Grill Western and Filipino casual food $30 n.a. n.a. 1.1% 0.7

7 Goldilocks Bake Shop Bakery, Filipino casual food $27 365 $73,425 0.9% (0.1)

8 Wendy's American fast food $23 104 $223,077 0.8% (0.1)

9 Duskin Co Ltd Donuts under the "Mister Donut"

brand

$23 2,000 $11,350 0.8% 0.0

10 Bon Chon Inc Korean fried chicken $17 41 $417,073 0.6% 0.4

11 Sbarro Inc American Pizza $13 34 $379,412 0.4% 0.0

12 Tropical Hut Food

Market

American fast food $10 50 $204,000 0.4% (0.3)

13 Pancitng Taga Malabon Filipino casual food $10 10 $960,000 0.3% (0.1)

14 Mexicali Foods Corp Californian-Mexican fast food $10 13 $730,769 0.3% (0.1)

15 International Dairy

Queen

Ice cream $8 15 $553,333 0.3% 0.2

Source: Company data, Euromonitor, Credit Suisse estimates

China: Slow and steady march

Unlike the Philippines where a clear leader presides, the QSR industry in China is heavily

fragmented with the top ten players holding only 12.3% market share in 2012. As of 2012,

Jollibee ranked #10 in terms of market share with retail sales of US$123 mn; while the #1

player Yum! Brands has made significant share gains in the last two years. Jollibee has

slowly gained share from competitors such as Ajisen. Share gains from the bigger players

should continue as the market consolidates, and we expect Jollibee to have the scale to

expand and/or acquire smaller players and maintain its position in the top 10-15. Plus,

Jollibee is adding ~40 stores per year and targeting 25% annual growth in China.

China’s QSR industry is

much more fragmented, but

Jollibee has made steady

gains in market share in the

last two years

06 December 2013



Figure 55: China’s QSR market is fragmented… China QSR market share breakdown, 2012 (by value)

Figure 56: …as Jollibee’s market share remains low

despite its top 10 position JFC vs key competitors 2007-12 market share

Yum!

Brands

6.5%

McDonald'

s 2.3%

Ting Hsin

Intl 1.5%Hua Lai Shi

0.6%

Ajisen

0.4%

Jollibee

Foods Corp

0.1%

Country

Style

Cooking

0.2%

Yoshinoya

0.1%

Other

88.3%

2012 China QSR

market size

USD106bn

0%

1%

2%

3%

4%

5%

6%

7%

2007 2008 2009 2010 2011 2012

Yum! Brands McDonald's

Ting Hsin Intl Ajisen

Jollibee Foods Corp

Source: Euromonitor Source: Euromonitor

06 December 2013



Don’t be deterred by valuation Throughout this report we justify that Jollibee’s strong consumer franchise underpinned by

consistent long-term earnings growth, high and rising excess returns and financial

prowess will support valuations going forward. Barring any macro shocks to the

Philippines economy and/or negative fund flows by foreign investors, we feel multiple

contraction risk is low because the fundamental outlook is solid. This being said, there is

risk to the upside from accelerated earnings growth as a results of an Indonesian

acquisition. This is not priced in by the market, which leaves additional optionality in

addition to SuperFodds Group in Vietnam.

In determining our target price of P205, we take the average of our three approaches:

(1) Flat P/E multiple (40x 2014E EPS and 33x 2015E EPS) – P209/share

(2) Flat EV/EBITDA multiple (21x 2014E EV/EBITDA and 18x 2015E EV/EBITDA) –

P207/share

(3) DCF (8.2% WACC, 10x EBITDA terminal value, 11% FCF CAGR) – P202/share

Historical valuations not all that relevant

Relative to any historical valuation metric, Jollibee shares are currently trading at or near

all-time highs. However, this carries relatively low meaning to us because the Philippine

domestic economy is the strongest it has been in over a decade, Jollibee has the greatest

degree of scale domestically it has ever had; 20% of growth now comes from high-growth

international markets where momentum potential is strong (namely China and Vietnam),

FCF generation is strongest and visibility to earnings growth is best.

Comparison to NJA foodservice peers

The NJA foodservice peer group trades at average 2014E EV/EBITDA and 2014E P/E

multiples of 19.5x and 35x, respectively. These high valuations reflect the long-term

structural growth story in penetration, urbanisation, rising incomes/wealth and per capita

spending. Interestingly, a material dichotomy has emerged between organic growth rates

of local foodservice operators and that of multinational players. The former have

formats/concepts that resonate stronger with local consumers and arguably have greater

and long growth potential as a result. This is why valuations for local players have

expanded while those of multinationals have actually contracted.

Within the NJA foodservice landscape (Figure 57), Jollibee trades at lower multiples and

lower FCF and Dividend yields, despite being larger, greater forward ROIC expansion,

comparable margins when adjusted apples-to-apples, has higher store productivity and

generates higher returns.

Jollibee’s strong consumer

franchise will support

valuations going forward,

with upside risk from

potential acquisitions

Historical valuations do not

capture the streak of

earnings growth or scale of

Jollibee today

NJA foodservice stocks

trade at high multiples given

the structural story …

… but Jollibee trades at

lower multiples than the

peers despite greater

forward excess return

expansion and higher store

productivity

06 December 2013



Figure 57: Jollibee head-to-head against NJA foodservice peers

JFC Tsui Wah Ajisen Jubilant Average

Symbol JFC.PS 1314.HK 0538.HK JUBI.BO

Market Cap (US$ mn) 4,175 963 1,054 1,404

6mos ADTO (US$ mn) 2.7 2.0 2.5 6.0

CS Rating OUTPERFORM OUTPERFORM OUTPERFORM UNDERPERFORM

P/E

2013E 40.1x 47.0x 28.6x 57.9x 43.4x

2014E 33.9x 35.7x 23.3x 45.3x 34.6x

2015E 27.5x 21.9x 19.8x 36.5x 26.4x

EV/EBITDA

2013E 21.1x 35.9x 13.5x 29.9x 25.1x

2014E 18.1x 26.4x 10.8x 23.4x 19.7x

2015E 15.4x 15.2x 9.2x 18.9x 14.7x

Gross margin

2013E 18.3%/54.4%* 69.4% 66.8% 73.1% 69.8%

2014E 18.7%/54.6%* 69.4% 66.4% 73.1% 69.6%

2015E 19.3%/55.1%* 69.5% 65.5% 73.1% 69.4%

EBITDA margin

2013E 10.6%/14.2%* 16.8% 15.2% 16.1% 16.0%

2014E 10.8%/13.9%* 16.2% 16.8% 16.3% 16.4%

2015E 11.2%/15.0%* 18.9% 16.7% 16.3% 17.3%

ROIC

2014E 18.75% 21.07% 9.49% 24.54% 18.46%

ROIC

3yr Fwd ROIC Change 647 bps 1,400 bps 643 bps -705 bps 496 bps

FCF Yield

2014E 1.61% -1.66% 4.50% 0.97% 1.35%

Dividend Yield

2014E 1.78% 1.12% 1.41% 0.00% 1.08%

Operating metrics

2013E Sales (USDm) 1,904 140 414 296

Sales growth (3Y Fwd CAGR) 14% 44% 12% 26% 24%

Total stores (2013E) 2,778 30 672 576

% franchised 47% 0% 0% 0%

Sales/avg store (USDm, 2013E) 0.71 5.59 0.62 0.50 1.85

EBITDA/avg store (USDm, 2013E) 0.08 0.94 0.09 0.09 0.30

Avg check size (USD) 3.72 30.54 6.90 n/a

*comparable gross margin: adjusted COGS (only incl. cost of inventories) and excluding commisary sales to franchises Note: Priced as of Dec 5 2013


06 December 2013



Investment risks The company’s business involves a number of risks, some of which are listed below:

Macroeconomic

As 80% of Jollibee’s system-wide sales and revenues come from the Philippines, its

business is significantly influenced by the economic, political and social environment in the

country. Our model assumes that domestic system-wide sales will grow at 13% p.a. over

the next three years, driven by real private consumption growth of 6% p.a. Our economist

also forecasts CPI inflation to increase 3-4% per year. Any adverse change in the

Philippines’ economic condition could affect consumer sentiment, purchasing power and

spending patterns and have a negative impact on consumer demand for Jollibee’s

products and lead to downside risks in our revenue and earnings estimates.

Foreign currency exchange

Jollibee has significant foreign currency exchange risks as 20% of its revenues are from

abroad (primarily China, US and Vietnam), and FX exposure is expected to increase as

revenue growth from its international operations accelerates. As the company’s reporting

currency is the Philippines Peso, any significant change in the RMB, USD, or VND is likely

to change the company’s cost and revenue structures, leading to both upside and

downside risks to our earnings estimates.

Acquisition

The company has made significant acquisitions and joint ventures in the past 3-4 years,

and we expect acquisitions to continue as Jollibee seeks to expand both its brand portfolio

and its regional presence. Therefore there are risks relating to any potential acquisition

activity—risk of capital raising to fund investments, execution risk, and risk of overpaying

for acquisition targets.

Natural disaster

As a country prone to multiple typhoons a year, the Philippines faces significant natural

disaster risks, and Jollibee’s national presence is prone to business disruption.

Management stated that the overall impact of Typhoon Yolanda on 4Q13 results was

estimated to be manageable, as property damage sustained on company-owned stores

was insignificant and was covered by insurance. As of 13 November 2013, 23 stores

mostly in Leyte and Samar remained closed due to property damage and disruption of

product supply. While these stores represent only 1.1% of the JFC Group’s total store

network in the Philippines, management remains uncertain when the stores will re-open.

06 December 2013



Companies Mentioned (Price as of 05-Dec-2013)

Ajisen (0538.HK, HK$7.5) Alliance Global Group Inc (AGI.PS, P24.3) Belle Corporation (BEL.PS, P5.27) Bloomberry Resorts Corporation (BLOOM.PS, P9.87) Cafe De Coral (0341.HK, HK$25.55) Central Plaza Hotel PCL (CENT.BK, Bt36.0) Chipotle Mexican (CMG.N, $518.11) Colgate-Palmolive India (COLG.BO, Rs1259.4) Dominos Pizza (DPZ.N, $68.71) ITC Ltd (ITC.BO, Rs308.9) Jollibee Foods Corporation (JFC.PS, P174.0, OUTPERFORM, TP P205.0) Jubilant Foodworks (JUBI.BO, Rs1363.65) McDonald's Corp (MCD.N, $95.71) Minor International PCL (MINT.BK, Bt24.0) Mitra Adiperkasa (MAPI.JK, Rp5,350) Nestle (NESN.VX, SFr64.5) Nestle India (NEST.BO, Rs5077.5) PepsiCo, Inc. (PEP.N, $82.65) Procter & Gamble Co. (PG.N, $83.35) Puregold Price Club, Inc (PGOLD.PS, P41.6) Seven & i Holdings (3382.T, ¥3,740) Starbucks (SBUX.OQ, $79.5) The Wendy's Company (WEN.OQ, $8.54) Tsui Wah Holding (1314.HK, HK$5.4) Universal Robina Corp. (URC.PS, P119.1) Wal-Mart Stores, Inc. (WMT.N, $80.22) Yum! Brands, Inc. (YUM.N, $75.66)

Disclosure Appendix

Important Global Disclosures

I, Karim P. Salamatian, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the les s attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Austr alia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s cove rage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

06 December 2013



*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. A n analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (54% banking clients)

Neutral/Hold* 41% (49% banking clients)

Underperform/Sell* 15% (41% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative bas is. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Price Target: (12 months) for Jollibee Foods Corporation (JFC.PS)

Method: Our 12-month target price of PHP205 for Jollibee Foods Corporation is based on the average of: (1) P/E (price-to-earnings) multiple (40x 2014E EPS and 33x 2015E EPS) of PHP209/share; (2) EV/EBITDA (enterprise value-to-earnings before interest, depreciation and amortisation) multiple (21x 2014E EV/EBITDA and 18x 2015E EV/EBITDA) of PHP207/share and (3) DCF (discounted cash flow) value of PHP202/share (8.2% WACC, 10x EBITDA terminal value, 11% FCF CAGR)

Risk: Risks that could impede achievement of our target price of PHP205 for Jollibee Foods Corporation include: macroeconomic risks that would have a negative impact on consumer demand, foreign currency exchange risk (20% of JFC's revenues are from abroad), acquisition risk, and natural disaster risks.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (CMG.N, MCD.N, NESN.VX, PG.N, PEP.N, WMT.N, URC.PS, BEL.PS, MINT.BK, MAPI.JK, 3382.T, NEST.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (CMG.N, MCD.N, NESN.VX, PG.N, WMT.N, URC.PS, MINT.BK, NEST.BO) within the past 12 months.

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As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (JUBI.BO, NESN.VX).

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PG.N). An analyst or a member of the analyst's household has a long position in the common stock of (PG).

06 December 2013



As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (PEP.N). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of PEP.N

Important Regional Disclosures

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The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (JFC.PS, JUBI.BO, 1314.HK, 0538.HK, CMG.N, MCD.N, WEN.OQ, YUM.N, NESN.VX, PG.N, PG.N, PEP.N, WMT.N, SBUX.OQ, URC.PS, BLOOM.PS, BEL.PS, AGI.PS, PGOLD.PS, MINT.BK, MAPI.JK, 3382.T, ITC.BO, NEST.BO, COLG.BO) within the past 12 months

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For Thai listed companies mentioned in this report, the independent 2013 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Central Plaza Hotel PCL (Very Good) , Minor International PCL (Excellent)

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited ...................................................................................................... Karim P. Salamatian, CFA ; Rebecca Kwee

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06 December 2013



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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.

When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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