FREE Stock in Focus: JFC (19 Aug 2019) by RCBC Securities

PinoyInvestor’s “Stocks in Focus” summarizes our partner brokers’ Fundamental Analysis of a company and explains the rationale for the stock’s long-term Target Price and broker’s recommendation. Learn how you can use this report in this PinoyInvestor guide.


NOTE: This Premium Stock in Focus report is prepared by one of PinoyInvestor’s partner brokerage firms. Do you want full access on other stock reports? Simply register here to get a free account or upgrade your membership. Premium Access subscription starts for as low as PHP 399.00 which gives you complete and unlimited access to all exclusive PSE reports! Happy smart investing!


Summary of Broker’s Recommendation
RCBC Securities HOLD 240.00 19 Aug 2019


Check How Many Brokers Recommend this stock

Stock Rankings: All Stocks

Our Partner Broker’s Recommendation

We slashed our Target Price for JFC from PHP 319.60 to PHP 240.00 per share, applying the midway to 2018 average Price-Earnings (P/E) ratio at 40.9x to its 12-month forward EPS of 5.85. Expected composite return in the next 12 months, including a forecasted dividend yield of 1.3%, would be 3.3% at the previous close of PHP 235.20. This underperforms versus our expected PSEi return of 13.7% to 8,900, hence we recommend a HOLD.


Our Partner Broker’s Analysis

Net income below expectations

JFC’s 1st Half (1H) 2019 core net income was below our expectation based on our 2019 forecast of PHP 7.5 billion. For our full year forecast, we maintained the 2nd Quarter same-store sales growth (SSSG) of 3.3% for the rest of the year and kept our store rollout assumption at 359 stores, net of closures. We forecast operating income of PHP 6.0 billionn, down 23%, due to higher direct costs and operating expenses. We cut our 2019 core net income forecast to PHP 6.1 billion, 20% lower year-on-year (yoy).

For 2020, we assumed SSSG growth to 5% due to an anticipated recovery in Red Ribbon’s SSSG and improved local consumer sentiment, another 359 new JFC stores, and the normalization of Red Ribbon’s expenses without any further pre-operating expenses associated with the new plant.


Earnings drag from CBTL

However, we also pencilled in the potential earnings drag that will come from Coffee Bean and Tea Leaf (CBTL). For simplicity’s sake, we assumed consolidation of CBTL by January 1, 2020 and maintained CBTL’s 2018 US$21 million net loss for the year minus its interest expense of PHP 237 million, given that it will be acquired on a debt-free basis, but also estimated PHP 632 million in additional interest expense from a $350 million bridge loan that JFC will use to fund the acquisition.

Hence, we forecast 2020 core net income of PHP 6.6 billion for JFC, 8% higher year-on-year (yoy). Despite the forecasted yoy earnings growth, that won’t be enough to bring JFC’s net income back to its level in 2018. ROE-wise, the 2020 ratio would only be at 12.3% from 16.9% in 2018.


Check out other useful and exclusive stock reports below from our partner stockbrokers!

Performance Report: Top Stock Picks by Sector (by Unicapital Securities)

Performance Report: Property Stock Picks Beat PSEi by 700%

Stock in Focus: NIKL (19 Aug 2019) by Regina Capital Dev’t Corp.

Technicals Talk: IDC (16 Aug 2019) by Unicapital Securities


See all reports for this stock here.

This report is prepared by PinoyInvestor’s partner broker below. Sign up to this stock broker to avail of their complete trading brokerage services:

RCBC Securities
RCBC Securities

RCBC Securities is one of PinoyInvestor’s partners in delivering superior and reliable stock research reports that help Filipino investors make smart stock investing decisions! Learn more about them here.