Jollibee or McDonald’s shares, which is better?

Disclosure: I do not have shares in any of the companies mentioned in this article and don’t plan to initiate purchase within the next 24 hours. I would not receive any compensation for doing this article. I am not a professional financial analyst. This is just a hobby. Lastly, my work is not error-free, but I strive for it to be.

If you are interested in this similar approach to investing I wish to invite you to this Facebook group

(https://www.facebook.com/groups/SeekingValue/?ref=bookmarks)

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Eating Chickenjoy on a ‘once-a-week’ basis in the Philippines and now feasting on Big Mac’s at least once a week in the U.S and out of curiosity, it would be fun to compare the Philippines’ largest fast food chain versus the world’s largest.

Plainly, McDonald’s (MCD) easily is a better choice in terms of size when compared to Jollibee (JFC). As of 9/6/2015, MCD’s market capitalization is $89.3 Billion, while JFC has $4.3 Billion or 204 Billion pesos. Starting from here I will convert the Philippine peso values into USD (in today’s exchange rate of 46.94 pesos per 1 USD) for ease of reading.

Comparing revenue and net income values would put JFC into MCD’s shadow too. JFC had $1,932 Million while MCD had $27,441 Million last fiscal year (FY) 2014.

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JFC’s net income in FY 2014 was $117 USD Million, while MCD had $4,758 USD Million.

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Now, what should draw the line as a point (or series) of comparison are not these bold numbers, BUT operating efficiency. How much is being given back to shareholders and what are the respective profitability margins. These are percentages and easily compared.

A brief history, MCD was founded on April 15, 1955 (60 years old at present), while JFC was founded on January 28, 1978 (a 37-year-old Filipino fast food giant). Nevertheless, MCD’s has developed a massive clout overtime. Maybe JFC would too! Who knows? It has 23 years to play catch up with MCD (and other giant fast food chains-which I may pick on next time) =)
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Let us now dive into the juicy part.

First, let us compare both companies’ profitability margins through ocular inspection (using five-year (FY 2010-2014) historical performance to see whether there is improvement or not).

Gross profit margin. This is money left over from revenues after accounting for the cost of goods sold (Investopedia). Buffett likes this number >40.

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Both parties are at a constant pace. JFC maintaining a near 20 range while MCD had a slight decline from 40 range.

Operating Margin. Operating margin is a measurement of what proportion of a company’s revenue is left over after paying for variable costs of production such as wages, raw materials, etc (Investopedia).

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JFC had a previous steady performance in the 5-10 range, while MCD had a minor challenging 2014 FY year (maybe because of all the tooth-in-the-fries and other product issues). Despite this MCD’s numbers hovers 3x than JFCs.

Net Margin. How much income the company makes from its revenues. More than 8% is my (personal) requirement.

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I should just take a pass with considering JFC as a suitable investment. But the preceding comparisons are unfair, but at the same time justifiable.

These are the facts:

JFC mainly operates in the Philippines and as of December 31, 2014, JFC operated 2,301 restaurants in the country under the brands Jollibee, Chowking, Greenwich, Red Ribbon, Mang Inasal and Burger King. The firm is also operating 612 stores overseas, more than 400 of which are in China. LINK (http://www.abs-cbnnews.com/business/02/23/15/jollibee-group-open-330-new-stores).

MCD, on the other hand, has roughly more than 14,000 locations nationwide Link (http://www.slate.com/blogs/moneybox/2015/06/19/mcdonald_s_to_shrink_u_s_restaurants_in_2015_for_first_time_in_decades.html).

It is TOUGH to maintain a food quality worldwide in serving (not the least) food. A fries served in Los Angeles, CA should be at par with taste and quality when served in the streets of Binondo, Manila. Same as a Chickenjoy served in Tayuman, Manila should be at par with crispiness-quality when served in Chicago, IL. Not to mention, culture barriers, satisfying employees/customers, adjusting to customer taste preferences, etc.

Credits should be given to MCD as it was able to maintain outstanding margins and for surmounting the inevitable geographical barrier (limited to being compared with JFC as of the moment). However, MCD should still be compared among other peers’ performance, such as the KFCs, Pizza Hut’s, etc., before considering to invest (at least, this is how I would approach this potential investment opportunity).

Overall, MCD would be a better selection over JFC. But this ‘finding’ brings a better research as you read through this article. (Almost done by the way).

I wish not to discredit JFC as a qualifiable investment because of its major consumer role and as it rose as one of the top companies in the Philippine industrial sector review I made this past week. See (https://perennialinvesting.wordpress.com/2015/09/01/a-brief-review-of-the-philippine-industrial-sector/).

JFC definitely is one of the top companies in the Philippines by size and operation and it is worth taking a further look at this company.

Another fact, a Filipino resident, unless having a social security number (SSN), may have difficulty investing in MCD shares since a U.S. broker is needed to access these shares.

Foreigners, on the other hand, can easily invest in JFC buy buying American Depositary Receipts (ADRs) with any U.S. brokerage firm.

One must ask, why not just get the MCD’s financial numbers in the Philippines and compare it with JFC? Great idea!

That will be the Part 2 of this article.

Part 2: MCD in the Philippines, Jollibee, and the others 

(https://perennialinvesting.wordpress.com/2015/09/07/mcd-in-the-philippines-jollibee-and-the-others/)

Part 3: MAXS or Jollibee,  which is better?

(https://perennialinvesting.wordpress.com/2015/09/07/maxs-or-jollibee-which-is-better/)

If you are interested in this similar approach to investing I wish to invite you to this Facebook group

(https://www.facebook.com/groups/SeekingValue/?ref=bookmarks)

Mark Y.

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