EMP: A leader for long term.

Emperador, Inc:

A leader for the long term

We met with the management of EMP this week and based on our discussions, sales remained robust in 4Q13 despite calamities during the period. They expect more growth this year as they capitalize of its strong brand equity and resumption of industry growth. We have a HOLD rating on EMP with a FV estimate of Php11.33. Despite our positive outlook on the company, we believe the market has priced in much of the positives at this point. Upside risks to our FV estimate are higher than expected revenue growth and margin expansion.

• 4Q13 sales look good. According to Emperador management, sales during the fourth quarter of last year remained robust despite the country being hit by typhoon Yolanda. In fact, sales in Leyte for the month of December reached a new monthly high. While Emperador has not yet disclosed market share figures, it most likely improved further in 4Q13.
• Industry growth to resume this year. Last year, the liquor industry saw sales volume contract due to the price shock brought about by higher sin taxes. Despite the drop in industry wide sales, EMP was able to maintain its sales volume, thereby increasing its market share. This year, EMP’s management expects sales volume of the industry to be back on a growth path. In the past, growth in sales volume averaged 6.5%. With a higher market share and better prospects for the industry, Emperador is set for another record year.
  
• Unfazed by competition. Competitors are trying to take a piece of Emperador Lights’s market share in light of its success. For example, Cosco Capital is trying to break in the brandy market with Excellente Brandy while Tanduay has Compañero Light. Emperador believes it still has the best product in the market and given its strong brand equity and superior product, the barrier to entry will be high for competitors.
  
• Preparing for capacity expansion. Emperador’s local bottling facility is currently running at around 75% capacity, which leaves little room for future growth. Thus, EMP is preparing to expand its local production capacity by 2016. It is earmarking Php4 Bil for expansion which it can easily fund with its cash from its share placement last year wherein it raised Php11.2 Bil.

SHARE DATA

Rating                    HOLD

Ticker                    EMP

Fair Value              11.33

Current Price         11.40

Upside (%)            -0.61

-The content presented in this page is courtesy by COL financial-

https://ph1.colfinancial.com/ape/Final2/ResearchCompUpdates/Downloads/2014-01-30-PH-S-EMP.pdf