August 16, 2015

Emperador Inc (EMP) reports 1H15 net income of P3.26b -3.7% YoY

In its quarterly report, Emperador Inc (EMP) reported 1H15 net income of P3.26b -3.7%YoY, despite revenue growth of 38% YoY. This was however, a significant improvement over the 18.4% decline in net income registered in 1Q15. EMP’s 2Q15 net income came in at P1.86b +38.7% YoY on the back of a 69.8% YoY increase in revenues.

Gross profit margins (GPM) decreased 240bps YoY to 32.5% despite an increase in domestic GPM as this was dragged down by significantly lower margins of Scotch Whisky by the Whyte and Macay Group (WMG). Increased operating costs of WMG further dragged on margins resulting in a 530bps decline in 1H15 net margin to 17.8%. This was, however, an improvement over the 15.8% net margin registered in 1Q15 but still a far cry from the low twenties registered in the previous years.

Our take: EMP’s 1H15 accounted for 47% of the full-year consensus forecast in contrast to last year when it generated 51% of the full-year earnings in 1H14. WMG, which was acquired in October 2014, continues to be a drag on the company’s results and offset strongdomestic operations. It accounts for a little more than a third of EMP’s overall revenues but contributes very little, if at all, to the bottomline due high costs. While WMG continues to struggle, EMP has been able to make inroads to improve its performance as can be gleaned in the relatively better 2Q15 results. – WealthSec