March 23, 2015

LTG’s 2014 core earnings down 51% YoY

In a briefing last Friday, LT Group Inc. (LTG) announced core earnings of P4.22b down 51% YoY as income across most of its business segments dropped. The only exceptions were Asia Brewery which grew its earnings 7.7% to P1.1b and Eton properties which recorded a 14% YoY rise in income to P119m. The huge drop in earnings can be traced primarily to its tobacco business which used to be the group’s single biggest earnings contributor.

Income from the tobacco operations fell 98% to P99m last year from P3.9b in 2013. Income from its banking and liquor businesses likewise fell with contribution from PNB down 9.7% to P3.1b while that from Tanduay declined 45% to P101m.

Our take: LTG’s earnings came just within expectations (market consensus forecast: P4.24b). LTG’s various businesses faced significant headwinds in 2014 mostly arising from the effects of the sin-tax law and tight competition in the tobacco business.

We believe however that its core liquor and tobacco businesses should recover this year as the hikes in sin taxes begin to moderate and as the BIR implemented stricter rules to curb the illicit trade in cigarettes. The latter has already prodded LTG’s competitor to raise its selling price thus limiting its pricing edge over LTG’s products. – WealthSec