"4Ps" - Finding the next Starbucks in the Philippines
Last week I wrote about the "4Ps" - great People, leading Products, huge Potential and Predictability, that was coined by Michael Moe, founder of Think Equity Partner as a basis for finding the next winners. To know more about the "4Ps", please log on to www.findingthenextstarbucks.com.
I received several emails asking me if the "4P" methodology is applicable to Philippine companies. Obviously, the answer is YES. Two companies that come to my mind are Jollibee and SM Prime Holdings. Let's look back and see how these 2 stocks performed since it went public.
Jollibee (JFC - P52.0) was listed in 1993. Its market capitalization upon listing is P3.3bn. Systemwide sales at that time was a "mere" P4.1bn. Today the company generates P34.0bn in revenues with systemwide sales reaching P44.0bn - roughly 10x from where it was 14 years ago. Its current market capitalization is P52.1bn. Earnings, on the other hand is expected to hit P2.5bn this year or 8.6x more than the P290m it reported in 1993.
So, if you kept your Jollibee shares since IPO, your P6.0; would have grown 9x to P52.0. On top of that, the company paid out P2.35 in cash dividend which further reduces your investment cost to P3.65 per share.
As a budding analyst, Jollibee was one of the first companies I covered. I was fortunate to have a one-on-one interview with its founder, Tony Tan Caktiong. Skeptics were saying that the Philippines cannot support the growth that its founder has set. At that time, there are less than 100 Jollibee sores. I remember vividly Mr. Tan Caktiong saying that he envisioned Jollibee to have 500 stores in 10 years. Today, after 14 years, Jollibee has a total of 1,559 stores - outpacing even the target set by Mr. Tan Caktiong.
So let's do the "4P" test on Jollibee.
First, great people. You can never argue with a visionary. Mr. Tan Caktiong set out to build Jollibee into the biggest quick service chain in the country. He has the distinction of beating US fastfood giant McDonald's in its own ballgame. Second, leading product. "Chicken Joy" is the top selling fastfood item in the country. It is something that Filipinos all over the world craves for. In fact, "Chicken Joy" brought Jollibee to where it is now. Third, huge potential. Jollibee leveraged its expertise in the quick service sector by expanding into other sub-segments of the market and eventually being leader at that. It owns the number one Chinese fastfood chain - Chowking, the largest pizza chain - Greenwich Pizza and the biggest bakery outlet - Red Ribbon. With the way things are going, Jollibee can more than double its current size to 5,000 stores by 2012. Fourth, predictability. It is very easy to estimate the earnings of Jollibee. Drivers for earnings growth are clear - revenue per outlet multiplied by number of stores. For the past 14 years, the company has consistently delivered double digit earnings and revenue growth. Based on current trend, earnings for Jollibee can reach the P5.0bn mark in the next 5 years.
SM Prime (SMPH - P11.0) was listed in 1994. Its market capitalization upon listing was P29.3bn. Total revenues was P2.2bn with net income reaching P1.0bn. There were only 3 SM Malls operating that time. During its IPO, SMPH was priced at a lofty 29x PER. Analyst said it was overvalued. However, Mr. Henry Sy stuck to his vision and mentioned that the growth potential of SMPH far outweighs its lofty valuations. During the roadshow, Mr. Sy mentioned that SM Malls will be present in all major cities in he Philippines and promised that earnings will grow by at least P500m every year. People doubted but the taipan persisted.
Today, SMPH generates P15.0bn in revenues with earnings expected to reach P6.0bn. By year end, there will be 31 SM Malls nationwide. On the other hand, its market capitalization has reached P130.0bn. From its listing, shares of SMPH have risen from dividend adjusted P2.36 per share to P11.50 - or roughly 400% return. During the same period, the company paid out close to P2.0 in cash dividend.
So let's do the "4P" test on SMPH.
First, great people. No one can argue with the richest man in the Philippines. Mr. Henry Sy set out to build SMPH into the biggest retailing concern in the Philippines. No doubt, he is Sam Walton's counterpart in the Philippines. Second, leading product. SM Mall has the largest retail space in the country and commands a 30% price premium over its nearest competitor. I guess, the 50% net margin is a testament to this leadership. Third, huge potential. Until such time that SM Mall is present in all the major cities in the Philippines, skeptics should stop asking how SMPH can grow its revenue. The 31 malls in its portfolio today, can potentially be 100 malls in 10 years. Fourth, predictability. Like Jollibee, earnings drivers for SMPH are clear - revenue per sqm. multiplied by the number of retails space. For the past 13 years, earnings for SMPH has grown by an average of 25% p.a.
No doubt SMPH and JFC are "4P" stocks that investors should own. Incidentally, Henry Sy is the biggest shareholder in JFC outside the Tan family. It shows that Mr. Sy practices the "4P" principle in his investments as well.
For comments, you can send me an email at jack.galt888@gmail.com
I received several emails asking me if the "4P" methodology is applicable to Philippine companies. Obviously, the answer is YES. Two companies that come to my mind are Jollibee and SM Prime Holdings. Let's look back and see how these 2 stocks performed since it went public.
Jollibee (JFC - P52.0) was listed in 1993. Its market capitalization upon listing is P3.3bn. Systemwide sales at that time was a "mere" P4.1bn. Today the company generates P34.0bn in revenues with systemwide sales reaching P44.0bn - roughly 10x from where it was 14 years ago. Its current market capitalization is P52.1bn. Earnings, on the other hand is expected to hit P2.5bn this year or 8.6x more than the P290m it reported in 1993.
So, if you kept your Jollibee shares since IPO, your P6.0; would have grown 9x to P52.0. On top of that, the company paid out P2.35 in cash dividend which further reduces your investment cost to P3.65 per share.
As a budding analyst, Jollibee was one of the first companies I covered. I was fortunate to have a one-on-one interview with its founder, Tony Tan Caktiong. Skeptics were saying that the Philippines cannot support the growth that its founder has set. At that time, there are less than 100 Jollibee sores. I remember vividly Mr. Tan Caktiong saying that he envisioned Jollibee to have 500 stores in 10 years. Today, after 14 years, Jollibee has a total of 1,559 stores - outpacing even the target set by Mr. Tan Caktiong.
So let's do the "4P" test on Jollibee.
First, great people. You can never argue with a visionary. Mr. Tan Caktiong set out to build Jollibee into the biggest quick service chain in the country. He has the distinction of beating US fastfood giant McDonald's in its own ballgame. Second, leading product. "Chicken Joy" is the top selling fastfood item in the country. It is something that Filipinos all over the world craves for. In fact, "Chicken Joy" brought Jollibee to where it is now. Third, huge potential. Jollibee leveraged its expertise in the quick service sector by expanding into other sub-segments of the market and eventually being leader at that. It owns the number one Chinese fastfood chain - Chowking, the largest pizza chain - Greenwich Pizza and the biggest bakery outlet - Red Ribbon. With the way things are going, Jollibee can more than double its current size to 5,000 stores by 2012. Fourth, predictability. It is very easy to estimate the earnings of Jollibee. Drivers for earnings growth are clear - revenue per outlet multiplied by number of stores. For the past 14 years, the company has consistently delivered double digit earnings and revenue growth. Based on current trend, earnings for Jollibee can reach the P5.0bn mark in the next 5 years.
SM Prime (SMPH - P11.0) was listed in 1994. Its market capitalization upon listing was P29.3bn. Total revenues was P2.2bn with net income reaching P1.0bn. There were only 3 SM Malls operating that time. During its IPO, SMPH was priced at a lofty 29x PER. Analyst said it was overvalued. However, Mr. Henry Sy stuck to his vision and mentioned that the growth potential of SMPH far outweighs its lofty valuations. During the roadshow, Mr. Sy mentioned that SM Malls will be present in all major cities in he Philippines and promised that earnings will grow by at least P500m every year. People doubted but the taipan persisted.
Today, SMPH generates P15.0bn in revenues with earnings expected to reach P6.0bn. By year end, there will be 31 SM Malls nationwide. On the other hand, its market capitalization has reached P130.0bn. From its listing, shares of SMPH have risen from dividend adjusted P2.36 per share to P11.50 - or roughly 400% return. During the same period, the company paid out close to P2.0 in cash dividend.
So let's do the "4P" test on SMPH.
First, great people. No one can argue with the richest man in the Philippines. Mr. Henry Sy set out to build SMPH into the biggest retailing concern in the Philippines. No doubt, he is Sam Walton's counterpart in the Philippines. Second, leading product. SM Mall has the largest retail space in the country and commands a 30% price premium over its nearest competitor. I guess, the 50% net margin is a testament to this leadership. Third, huge potential. Until such time that SM Mall is present in all the major cities in the Philippines, skeptics should stop asking how SMPH can grow its revenue. The 31 malls in its portfolio today, can potentially be 100 malls in 10 years. Fourth, predictability. Like Jollibee, earnings drivers for SMPH are clear - revenue per sqm. multiplied by the number of retails space. For the past 13 years, earnings for SMPH has grown by an average of 25% p.a.
No doubt SMPH and JFC are "4P" stocks that investors should own. Incidentally, Henry Sy is the biggest shareholder in JFC outside the Tan family. It shows that Mr. Sy practices the "4P" principle in his investments as well.
For comments, you can send me an email at jack.galt888@gmail.com
posted by jack galt at
5:15 PM
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