November 13, 2014

EMP posts flat 9M14 net income growth

In a briefing yesterday, Emperador Inc (EMP) announced 9M14 net income of P4.57b, reflecting a 1.7% YoY growth. Revenues from sales of goods for 3Q14 grew by just 0.9% YoY to P6.64b, bringing the 9M14 figure to P19.56b which is 1.1% lower YoY. However, this shows an improvement from the 2% drop in 1H14. However, this was offset by favorable cost efficiencies and lower raw material costs which resulted in a 5% decrease in cost of goods sold. This shored up EMP’s gross profit margin to 41% in 3Q14 from 36% in 3Q13, thus bringing the 9M14 level to 39% from 38% in 9M13.

In order to grow revenues, EMP plans to launch a 350ml SKU version of its popular brandy to be priced within the P40-42/bottle range. EMP likewise plans to launch its own whiskey brand alongside the Whyte and Macay portfolio of products in the Philippines by 1H15. The company notes that there would be minimal capex associated with the launch of its own whiskey brand given that the newly acquired whiskey plant in the UK is currently running at just 70% of total capacity.

Our take: Notwithstanding the improvement in EMP’s 3Q14 results, the ytd net income still fell short of expectations and accounted for just 72% of consensus forecast largely due to the impact of tight competition. At any rate, EMP may have room to catch up in 4Q14 given the seasonal rise in consumption.

It also remains to be seen if EMP’s initiatives at expanding its product offerings and geographical reach will pay off. The launch of the 350ml SKU marks the company’s first product to be priced below P50. We believe that this can help the company recover market share as the new product can broaden EMP’s market. Moreover, the launch of its own whiskey brand should enable EMP to establish a stronghold on the domestic whiskey market given that there are currently no strong local manufacturers of whiskey. This should make it easier for EMP to garner a larger share of the hard liquor market moving forward. EMP currently claims a 50% market share for all hard liquors in the Philippines. – Wealthsec