Emperador, Inc.

MON 24 MAY 2021

1Q21 earnings rose 43%, beating

estimates on lower-than-expected opex
EMP’s 1Q21 earnings rose 43% y/y to Php2.1Bil, ahead of estimates. EMP’s 1Q21
earnings rose 43% y/y to Php2.1Bil, outperforming both COL and consensus estimates
at 25.9% and 26.5% of full-year forecasts, respectively. The outperformance was mainly
HOLD
due to lower-than-expected operating expenses as sales were in line. Operating expenses
during the quarter contracted by 14% y/y to Php1.5Bil amid reduced spending due to TICKER: EMP
lockdowns and ongoing travel bans. In particular, the ongoing travel restrictions led to FAIR VALUE: 9.50
lower salaries and wages (-3.4%), advertising costs (-8.4%), and travel and transportation CURRENT PRICE: 9.24
(-35%), among others. Meanwhile, EMP’s sales grew 14.5% y/y to Php11.9Bil. This was in
line with COL estimates (21.8% of FY) but ahead of consensus (24.8% of FY) as 1Q sales UPSIDE: 2.81
historically accounted for 20-21% of full-year figures. Broken down, both brandy (+7.7%)
and scotch whisky (+27.2%) recorded higher sales during the quarter.

Whisky segment sees robust growth. Sales from EMP’s whisky segment grew by 27.2%
y/y to Php3.9Bil. Recall that 1Q20 sales of the whisky business declined by 7.7% y/y as
operations were negatively affected by the early onset of the pandemic. Nevertheless,
EMP’s whisky business saw strong demand in the first quarter of 2021, up 17% compared
to pre-pandemic sales in 1Q19. Growth was led by the continued pick up in off-premise
and e-commerce channels. Its Jura brand is now the number 1 brand in the UK off-trade,
delivering 38% volume growth. Meanwhile, its Tamnavulin brand holds the number 2
spot with volumes up 80% y/y. EMP said most international markets are recovering amid
the reopening of the global economy with Asian markets leading the growth. The strong
topline growth of the whisky business was complemented by better product mix with GPM
up 670 bps y/y as well as lower operating expenses. These factors allowed whisky profits to
grow 122% y/y and 9% higher versus pre-pandemic profits.

Maintain HOLD rating. We currently have a HOLD rating on EMP with a FV estimate
of Php9.5/sh. EMP’s international segment has done very well despite the pandemic. We
expect the whisky business to continue driving EMP’s long term growth amid its strong and
fast-growing brand portfolio, which has grabbed significant share across global markets.
Domestic brandy operations has also improved amid the steady reopening of the economy
and cost containment efforts. At EMP’s current price of Php9.3/sh, however, there is no
more upside to our FV estimate.
FORECAST SUMMARY

Year to December 31 (Php Mil) 2017 2018 2019 2020E 2021E 2022E
Revenues 42,206 46,346 50,260 50,952 54,328 57,562
%change y/y 4.3% 9.8% 8.4% 1.4% 6.6% 6.0%
EBITDA 8,631 9,511 10,024 11,163 11,612 11,841
%change y/y -14.9% 10.2% 5.4% 11.4% 4.0% 2.0%
EBITDA margin 20.4% 20.5% 19.9% 21.9% 21.4% 20.6%
Net Profit 6,322 6,658 6,726 7,796 8,061 8,147
%change y/y -17.8% 5.3% 1.0% 15.9% 3.4% 1.1%
Net profit margin 15.0% 14.4% 13.4% 15.3% 14.8% 14.2%
EPS (in Php) 0.39 0.41 0.42 0.48 0.50 0.51
%change y/y -17.8% 5.3% 2.6% 14.1% 3.4% 1.1%

RELATIVE VALUE
P/E(X) 23.6 22.4 21.8 19.1 18.5 18.3 Justin Richmond Cheng
ROE(%) 11.5% 11.6% 11.0% 11.7% 11.3% 10.7% Research Analyst
Dividend Yield (%) 2.0% 1.7% 1.8% 1.8% 2.0% 2.1% justin.cheng@colfinancial.com
*So urce: EM P , COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
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 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

EMP’s 1Q21 earnings rose 43% y/y to Php2.1Bil, ahead of

estimates

EMP’s 1Q21 earnings rose 43% y/y to Php2.1Bil, outperforming both COL and consensus
estimates at 25.9% and 26.5% of full-year forecasts, respectively. The outperformance
was mainly due to lower-than-expected operating expenses as sales were in line.
Operating expenses during the quarter contracted by 14% y/y to Php1.5Bil amid reduced
spending due to lockdowns and ongoing travel bans. In particular, the ongoing travel
restrictions led to lower salaries and wages (-3.4%), advertising costs (-8.4%), and travel
and transportation (-35%), among others. Meanwhile, EMP’s sales grew 14.5% y/y to
Php11.9Bil. This was in line with COL estimates (21.8% of FY) but ahead of consensus
(24.8% of FY) as 1Q sales historically accounted for 20-21% of full-year figures. Broken
down, both brandy (+7.7%) and scotch whisky (+27.2%) recorded higher sales during the
quarter.

Exhibit 1: Results Summary

% of estimates
1Q20 1Q21 % change
in Php Mil COL Consensus
Sales 10,360 11,858 14.5% 21.8 24.8
Gross profit 3,410 3,898 14.3% 21.6 23.7
Gross profit margin 32.9% 32.9% - - -
Operating income 1,678 2,412 43.7% 25.7 24.0
Operating income margin 16.2% 20.3% - - -
Net income 1,457 2,084 43.0% 25.9 26.5
Net income margin 14.1% 17.6% - - -

Source: EMP, COL Estimates, Bloomberg

Brandy business delivers better results amid improving

sales and lower opex

Sales from EMP’s brandy business grew 7.7% y/y to Php8.2Bil, notwithstanding some
liquor restrictions in certain areas of the Philippines. This is an improvement relative to
the 1.4% sales decline in 1Q20. Growth was achieved amid improving demand for both
local and offshore brandy sales (e.g. USA, UK, and Mexico). Its Emperador and Fundador
brands both saw increasing sales during the quarter. Meanwhile, gross profit margin
(GPM) from the brandy business dropped 380 bps y/y to 28.2% amid higher input costs
and a more unfavorable sales mix. Nevertheless, profits from the brandy business still
managed to grow 20.4% y/y to Php1.4Bil. This was largely due to EMP’s continued cost
control initiatives over marketing, promotions, and representation expenses.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

Whisky segment sees robust growth

Sales from EMP’s whisky segment grew by 27.2% y/y to Php3.9Bil. Recall that 1Q20 sales
of the whisky business declined by 7.7% y/y as operations were negatively affected by the
early onset of the pandemic. Nevertheless, EMP’s whisky business saw strong demand in
the first quarter of 2021, up 17% compared to pre-pandemic sales in 1Q19. Growth was
led by the continued pick up in off-premise and e-commerce channels. Its Jura brand is
now the number 1 brand in the UK off-trade, delivering 38% volume growth. Meanwhile,
its Tamnavulin brand holds the number 2 spot with volumes up 80% y/y. EMP said most
international markets are recovering amid the reopening of the global economy with
Asian markets leading the growth. The strong topline growth of the whisky business was
complemented by better product mix with GPM up 670 bps y/y as well as lower operating
expenses. These factors allowed whisky profits to grow 122% y/y and 9% higher versus
pre-pandemic profits.

Exhibit 2: Segment breakdown

in Php Mil 1Q20 1Q21 % change

Revenues (Sales and other revenues)
Brandy 7,580 8,163 7.7%
Whisky 3,078 3,914 27.2%
Gross profit (includes other revenues)
Brandy 2,426 2,306 -4.9%
Whisky 1,047 1,592 52.1%
Net income
Brandy 1,135 1,367 20.4%
Whisky 323 717 122.0%
Source: EMP

Maintain HOLD rating

We currently have a HOLD rating on EMP with a FV estimate of Php9.5/sh. EMP’s

international segment has done very well despite the pandemic. We expect the whisky
business to continue driving EMP’s long term growth amid its strong and fast-growing
brand portfolio, which has grabbed significant share across global markets. Domestic
brandy operations has also improved amid the steady reopening of the economy and
cost containment efforts. At EMP’s current price of Php9.3/sh, however, there is no more
upside to our FV estimate.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

Emperador, Inc. (EMP) INCOME STATEMENT (PHPMIL)

2017 2018 2019 2020E 2021E 2022E
Revenues 42,206 46,346 50,260 50,952 54,328 57,562
COMPANY BACKGROUND % Growth 4.3% 9.8% 8.4% 1.4% 6.6% 6.0%
Gross Profit 14,621 16,041 16,926 16,434 18,075 19,537
Emperador Distillers is a holding company
% Growth -2.7% 9.7% 5.5% -2.9% 10.0% 8.1%
which operates an integrated business of EBITDA 8,631 9,511 10,024 11,163 11,612 11,841
manufacturing, bottling, and distributing % Growth -14.9% 10.2% 5.4% 11.4% 4.0% 2.0%
distilled spirits and other alcoholic Operating Profit 8,811 8,563 7,980 9,000 9,378 9,535
beverages from the Philippines and Europe. % Growth -8.8% -2.8% -6.8% 12.8% 4.2% 1.7%
Emperador distillers owns Whyte & Mackay Interest Expense (892) (819) (781) (773) (811) (852)
Other Income/(Expense) (83) 692 1,281 1,397 1,385 1,375
Group, Fundador, and Mexico’s leading
Net Income 6,332 6,829 6,833 7,796 8,061 8,147
brandy Presidente.
% Growth -17.7% 7.8% 0.1% 14.1% 3.4% 1.1%
EPS 0.39 0.41 0.42 0.48 0.50 0.51
% Growth -17.8% 5.3% 2.6% 14.1% 3.4% 1.1%
NET INCOME BREAKDOWN
BALANCE SHEET (IN PHPMIL)
2017 2018 2019 2020E 2021E 2022E
Cash & Equivalents
Emperador and other 10,162 6,228 7,741 11,937 14,709 16,964
28%
Receivables
local products 14,926 18,876 23,720 21,591 23,022 24,392
Inventories 25,187 28,396 30,509 30,499 32,032 33,598
Bodegas Fundador
Other Current Assets 973 2,500 1,875 1,875 1,875 1,875
PPE and Investment Properties 26,341 27,248 28,987 29,450 29,791 30,010
4% Intangible
Whyte Assets
& Mackay 29,894 30,230 28,895 28,895 28,895 28,895
68% Investment in Joint Venture 3,234 3,278 3,024 3,243 3,473 3,715
Other Non-Current Assets 819 1,063 1,016 1,118 1,230 1,353
Total Assets 111,536 117,818 125,986 128,828 135,247 141,020
Payables and other current liabilities 12,076 13,235 17,013 14,723 16,122 16,892
ST Debts 4,161 5,700 6,641 6,641 6,641 6,641
Emperador and other Other Current Liabilities 600 1,282 1,871 1,871 1,871 1,871
local products LT Debts 33,988 33,574 28,742 28,742 28,742 28,742
Bodegas Fundador Other Non-Current Liabilities 2,357 2,664 2,365 2,365 2,365 2,365
Total Liabilities 53,182 56,454 61,269 58,980 60,379 61,148
Whyte & Mackay Total Equity 58,354 61,364 64,717 69,848 74,869 79,872
68% Total Liabilities & Equity 111,536 117,818 125,986 128,828 135,247 141,020
BVPS 3.58 3.75 3.96 4.28 4.59 4.90

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020E 2021E 2022E
Pretax Income 7,835 8,436 8,480 9,625 9,952 10,059
Depreciation & Amortization 796 1,075 1,544 1,538 1,660 1,783
Other Non-Cash Exp (Gains) (40) 1 87 (219) (230) (242)
Interest Expense (Income) 796 554 436 316 378 440
Decrease (Increase) in Working Cap -5,596 -6,670 -2,452 -54 -1,478 -2,090
Operating Cash Flow 2,463 2,844 7,444 9,377 8,390 8,038
Capex -6,545 -2,343 -2,159 -2,200 -2,200 -2,200
Decrease (Increase) in other investments -2,529 291 883 457 434 412
Investing Cash Flow -8,215 -3,167 -1,276 -1,743 -1,766 -1,788
Proceeds (Payment) Debts 8,764 1,092 1,151 0 0 0
Net proceeds from issuance of capital stock 848 0 0 0 0 0
Interest Paid -541 -773 -706 -773 -811 -852
Others -3,006 -2,399 0 -2,665 -3,040 -3,144
Financing Cash Flow 5,740 -3,611 -4,656 -3,437 -3,852 -3,995
Change in Cash -11 -3,934 1,512 4,197 2,772 2,254

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

INVESTMENT THESIS: KEY RATIOS

Biggest brandy company in the world 2017 2018 2019 2020E 2021E 2022E
Gross Profit Margin 34.6% 34.6% 33.7% 32.3% 33.3% 33.9%
Emperador is the largest brandy company EBITDA Margin 20.4% 20.5% 19.9% 21.9% 21.4% 20.6%
in the world. The strong organic growth of Operating Profit Margin 20.9% 18.5% 15.9% 17.7% 17.3% 16.6%
its Emperador brandy has made it the best- Net Profit Margin 15.0% 14.7% 13.6% 15.3% 14.8% 14.2%
Times Interest Earned (X) 9.87 10.46 10.21 11.65 11.56 11.19
selling brandy brand in the world, selling Current Ratio (X) 3.04 2.77 2.24 2.52 2.60 2.71
around 30 Mil cases each year. Emperador Net D/E Ratio (X) 0.48 0.54 0.43 0.34 0.28 0.23
Days Inventory 217.8 223.6 221.6 218.5 215.2 213.0
solidified its position as the biggest brandy
Days Receivable 129.1 148.7 172.3 154.7 154.7 154.7
company by acquiring Fundador in 2015 Days Payable 159.8 159.4 186.3 155.7 162.3 162.1
and Domecq brandies in 2016. Asset T/O (%) 37.8% 39.3% 39.9% 39.6% 40.2% 40.8%
ROAE (%) 10.6% 10.8% 10.2% 10.8% 10.4% 9.9%

Best positioned to capitalize on MAJOR CORPORATE DEVELOPMENTS (5-YEARS)

premiumization trends Acquisition of 100% of Bodegas Las Copas SL 02/13/2014
Through a string of acquisitions, Emperador
has grown from a one-product company
Acquisition of 100% of Whyte & Mackay Group (WMG) 10/31/2014
to one that has products and brands to
cater to all income segments, from low end
(Emperador) to the very high end (Dalmore). Acquisition of Bodegas Fundador and other Spanish assets 11/30/2015
This puts Emperador in good position
to capitalize on the premiumization of Acquisition of Domecq brandy and sherry business of Pernod Ricard S.A. in
12/01/2016
Mexico
consumer preference that comes along
with economic growth.

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

Valuation RELATIVE VALUATION

Methodology 2020E
P/E
2021E 2020E
EPS Growth
2021E
Emperador Distillers 19.11 18.48 2.6% 3.4%
United Spirits Ltd. 49.94 54.30 1590.0% -802.4%
Heineken N.V 21.29 19.75 3.9% 7.8%
Remy Cointreau 34.27 30.23 13.3% 13.4%
Pernod Ricard SA 24.72 22.11 10.7% 11.8%
Diageo Plc 23.99 22.20 8.3% 8.1%
Davide Campari-Milan S.p.A. 32.88 29.14 12.1% 12.9%
Hite Jinro Co. 31.00 26.07 12.9% 12.6%
Industry Average 31.2 29.1 235.9% -105.1%
Industry Median 31.0 26.1 12.1% 11.8%

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I EMP: 1Q21 EARNINGS ROSE 43%, BEATING ESTIMATES ON
LOWER-THAN-EXPECTED OPEX

MON 24 MAY 2021

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG

SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7