Daiwa downgraded Jollibee Foods to Outperform from Buy after the recent rally in the share price, but raised its target price to 330 Philippine pesos from 306 pesos after rolling forward to end-2019 forecasts.
Jollibee’s shares were up 0.89 percent at 315.80 pesos at 9:37 A.M. SGT; that was up from a low of around 243 pesos touched in October.
Daiwa noted that Jollibee reported nine-month 2018 associate losses from Cargill Joy of 151.5 million pesos, wider than the 2017 loss of 78 million pesos. Cargill Joy is the company’s joint venture with Cargill for poultry processing.
“We had expected Cargill Joy to achieve break-even at the net income level by 2018, but shift our break-even assumption to end-2020E,” Daiwa said in a note on Thursday. “Despite this setback, we continue to like JFC because of its strong brand equity among Filipino consumers.”
It now forecasts the associate losses from Cargill Joy would reach 170 million pesos in 2018 and 85 million pesos in 2019. It also raised its revenue contribution forecasts from Cargill Joy to 3.27 billion pesos in 2018 and 3.80 billion pesos in 2019, up from its previous estimates of 1.62 billion pesos and 1.85 billion pesos, respectively.
Daiwa also pointed to potential catalysts ahead.
“We see a potential catalyst in candidate spending on the 2019 Philippine Senate election spilling over to middle-class spending, which we see as benefiting JFC’s top line,” it said.