Brokers’ take: UOBKH initiates coverage on Emperador with ‘hold’

Ilyas Salim
Published Tue, Oct 11, 2022 · 01:01 PM

UOB Kay Hian (UOBKH) has initiated coverage on Emperador : EMI 0% with a “hold” call and a target price of S$0.53, saying it likes the international spirits company’s strong brand portfolio as well as its ability to address shifting consumer preferences.

Emperador is the world’s top brandy producer by volume and the largest liquor producer in the Philippines. It is primary-listed on the Philippine Stock Exchange and secondary-listed on the Singapore Exchange, having recently replaced transport company ComfortDelGro on the Straits Times Index.

UOBKH’s target price on the stock implies a potential upside of 10.4 per cent from its Oct 10 closing price of S$0.48. It is based on a 30 times multiple of the stock’s 2023 price-to-earnings (PE) estimates, pegged to a 10 per cent premium to industry peers’ 2023 average PE. 

In a Tuesday (Oct 11) report, analyst Llelleythan Tan said he views the higher PE multiple for Emperador as justified due to the high pricing power commanded by the company’s premium alcohol, the demand for which is price inelastic.

He notes that the stock is currently trading at 26.9 times its 2023 PE, in line with its peers. 

“We think that Emperador is fairly valued at current price levels, and a key rerating catalyst would be the successful penetration of its key premium products into China and new growing markets,” said Tan.

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The analyst is projecting Emperador’s 2021-24 overall revenue at a CAGR (compound annual growth rate) of 5.7 per cent, with gross margins to improve to 35 per cent in 2024 from 32.8 per cent in 2022. 

He also expects gross profit to grow at a CAGR of 7.2 per cent from 2021 to 2024. 

“Similar to gross margin, net margin is expected to increase from 17.9 per cent in 2021 to 18.8 per cent in 2024 and a net profit CAGR growth of 7.0 per cent from 2021-24, driven by greater expected sales of premium alcohol,” said Tan.

Tan highlights Emperador’s premiumisation strategy as a key advantage for the company, as it capitalises on existing market trends which indicate that consumers are increasingly willing to pay higher prices for premium liquor. He noted that the company has priced its premium single malt whiskies 10 to 15 times higher than accessible Scotch whisky brands.

The analyst also believes the company is well-positioned to capitalise on growth opportunities in China, where Scotch whisky is the most popular type of whisky. 

Therefore, the research house regards Emperador as well-poised for robust future growth. 

As at the midday trading break on Tuesday, shares of Emperador were trading 1 per cent or S$0.005 lower at S$0.475.

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