July 30 (Bloomberg) -- Jollibee Foods Corp., which outsells McDonald’s Corp. in the Philippines, plans to double earnings in five years as it accelerates its expansion in China and seeks an acquisition in the U.S.
The fast-food company has more than 400 stores in China and wants to add about 100 more during that period, said Jollibee Chief Executive Officer Ernesto Tanmantiong. In the U.S., he plans to buy a regional food chain to boost its reach, he said.
“Buying a bigger-sized restaurant chain will make us become a major player in the U.S. at a faster pace,” said Tanmantiong, 56, who’s the younger brother of Jollibee founder Tony Tan Caktiong. “In China we are approaching the economies of scale that will give us better growth,”
Jollibee expects to get half of its sales from its overseas stores by 2020, up from 20 percent now, he said in an interview on July 28, his first since taking over as CEO of the Manila-based company this month. With stores in cities from New York to Shanghai, Tanmantiong said China and the U.S. are key to meet its target, he said.
Tanmantiong said McDonald’s decision to pull beef, pork and chicken items from its restaurants in China as a supplier recalled products made in the country diverted customers to other local fast-food chains. He added that Jollibee doesn’t use the same meat supplier as the U.S. chain.
Jollibee shares fell 0.9 percent to 175 pesos at the close in Manila, after rising as much as 0.8 percent.
The company’s profit has doubled to 4.67 billion pesos ($107.6 million) last year from 2.32 billion pesos in 2008 as sales jumped to 80.3 billion pesos from 43.9 billion pesos in the same period. The stock more than tripled over the past five years, outpacing the benchmark Philippine Stock Exchange Index, which doubled during that time.
“We hope to sustain the same growth rate we have achieved in the past five years,” said Tanmantiong, the former chief operating officer of the company, which he joined when he was in college.
Jollibee’s China operations could turn in a profit as early as 2016, when it increases the number of outlets under its three brands to 500, he said. In Shanghai, Jollibee owns Yonghe King, along with Hongzhuangyuan in Beijing and San Pin Wang in Guanxi.
“Jollibee’s growth could be sustained if its China expansion will eventually pan out as that would give it a significant bump in earnings,” said Steve Sevidal, chief investment officer at Manila-based United Coconut Planters Bank, which manages about $1 billion. “It’s really ventures outside the Philippines that will move the needle in the future.”
Jollibee, which started as an ice-cream parlor in 1975, has six brands in the Philippines, including the nation’s biggest hamburger, pizza, chicken barbecue and Chinese food chains. It has a total of 11 brands, Tanmantiong said.
The company wants to replicate its China expansion in the U.S., Tanmantiong said. Since opening its first U.S. outlet in 1998 in the San Francisco area, Jollibee has expanded the chain to 80 stores through its Philippine-grown brands that also include Red Ribbon and Chowking. The company has three other stores in New Mexico operated through its Jinja Bar and Bistro brands acquired in 2011.
Jollibee will also expand its other overseas operations, including Vietnam, where it plans to add at least 50 stores in the next three years, more than doubling its existing 43 outlets. New overseas markets include Indonesia, which it plans to expand into in 2016, Tanmantiong said. The company is in 11 overseas markets, which could double in five years, he said.
Jollibee’s share price has gained 1.1 percent this year, trailing a 17 percent rally in the Philippine Stock Exchange Index. While valuation has eased from its November peak to 38 times reported earnings, it remains at a premium compared with the gauge’s 22 multiple.
“People have been saying the stock is expensive and that it is bound to go down but it has been going up year in, year out,” said Rico Gomez, vice president of Manila-based Rizal Commercial Banking Corp., which manages about $1.8 billion. “Jollibee has been a core holding in our portfolio since time immemorial. The top dog in an industry usually gets a premium over the rest.”
At home, Jollibee will build more stores for its brands to take advantage of the rising income brought about by the growing economy. Tanmantiong said expanding Jollibee’s local reach while keeping costs low will help it meet competition from other restaurant operators and convenience stores, including Mini Stop and 7-Eleven, which have been selling meals at competitive prices.
The company plans to spend 9.3 billion pesos this year to add new stores and fund other expansion plans, more than double last year’s 4.3 billion pesos expenditure, he said. It targets to open about 300 stores this year, 100 of which will be overseas, he said.
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