Jollibee Says It Will Invest $41 Million in Overseas Expansion

Jollibee Foods Corp. (JFC), the Philippines’ largest restaurant operator, will spend $41 million on overseas expansion in the U.S., China and other countries, as it looks beyond the domestic market for growth.

Manila-based Jollibee will spend $16 million to buy 20 Chowking Chinese restaurants in the U.S. from Fortune Food Service Co., and invest $25 million in a venture with Viet Thai International Joint Stock Co. in Vietnam, two separate stock exchange filings showed.

“It’s been Jollibee’s ambition to expand in Asia and the U.S. because it has saturated the Philippine market,” said Ron Rodrigo, head of research at DBP-Daiwa SB Capital Markets in Manila. “Its strategy is through acquisitions and the introduction of their own home-grown brands in overseas markets.”

Jollibee, which outsells McDonald’s Corp. in the Philippines, posted a 9.9 percent decline in first-quarter net income as higher costs squeezed margins. Chairman Tony Tan Caktiong said May 16 that domestic consumer demand has been “quite challenging,” while Chief Financial Officer Ysmael Baysa said on the same day that net income growth in the first half “will likely not be strong.”

Jollibee owns the nation’s biggest hamburger, pizza and Chinese food chains. Shares rose 0.6 percent to 86.50 pesos in Philippine Stock Exchange trading today.

The Chowking acquisition gives Jollibee “a more active role” in expanding the Chinese fast-food chain in the U.S., the company said in a statement. Jollibee, which owns Chowking in the Philippines, said the stores it will acquire had $19.2 million in sales last year, with $68,000 in earnings before interest, taxes and depreciation, or Ebitda.

Margins Hurting

“This can help boost earnings at a time when higher costs of raw materials are hurting margins,” said Rodrigo of DBP- Daiwa SB. “This expansion could start paying off six months onwards.”

Viet Thai, owner and operator of the Highlands Coffee, Hard Rock Cafe and other food outlets in Vietnam, will own the remaining stakes of the joint venture’s companies in Vietnam and Hong Kong, Jollibee said.

Viet Thai and its related parties will receive a $35 million loan to be repaid in 2016 at an interest of 5 percent a year, Jollibee said. Viet Thai’s combined restaurant businesses had $1.7 million in Ebitda last year on $30.2 million of sales, it said.

Jollibee said part of its investments in the Viet Thai venture will be used to fund the acquisition of an additional restaurant chain. The purchase will give the venture a total of 139 stores for all its brands, including 118 in Vietnam and 21 in five other countries, it said.

Jollibee owns six restaurant brands in the Philippines with a combined network of 1,931 stores in the Southeast Asian nation. The company also has 407 stores overseas, half of which are in China.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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