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    Apb presentation eng leetanwong Apb presentation eng leetanwong Document Transcript

    • 3/28/20121Asia Pacific Breweries LimitedResearchAnalystsENG You Si (Isaiah) | George LEE Ye HanRachel TAN Si Jing | WONG Hong WeiRecommend BUY with target price of $52APB Overview• Brewing and sale of beer and related products• Headquartered in Singapore• Over 40 Brands• Catering needs through 30 brewery operationsEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisIndustry: Beverages (Alcoholic)Porter’s 5 ForcesEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysis01122334455Beer IndustryIntensity of Competitive RivalryPower of SuppliersPower of BuyersThreat of a New EntrantThreat of a Substitute ProductHIGHLOWPorter’s 5 ForcesEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSupplier Power: LowLargenumberof farmers as suppliersLowswitching costs for brewersBuying Power: HighInelastic demandfor beer but low consumerbrandloyaltyWholesalers:controlover purchasesRetailers: limited shelf spaces & multiplebrandsto choose fromThreats of Substitutes: MediumBeer has strong consumptionpositionBut other alcoholics beverages(e.g. Spirits)have increased in consumptionBeer brewers forced to adjust pricingThreats of New Entrants: MediumHigh fixed costs to invest in equipment,buildings,ingredients,recipes & HR for beerbreweryproductionSmall breweries are enter market only whenofferingunique productsto niche marketsCompetitive Rivalry: HighBreweriesproduceat near capacity to achieve EOS to overcome high fixed costsMany consolidatedto cut loss & reducecosts of productionHigh costs of advertisingto differentiate productsSWOTEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisStrengthsConsistent,high quality productsStrong brand equitySignificantflexibility for localizationWeaknessesSmall presence in top beer consumingcountriesSignificantreliance on Tiger BeerbrandOpportunitiesIncreasing demand in:Emerging markets (Russia, India)Non-alcoholicbeveragesThreatsGovernment regulationsGlobal economic slowdownIndustry consolidationpushing pricesdownAPB’s ObjectiveEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisTo be the leading brewery groupin theAsia Pacific region
    • 3/28/20122Aggressive multinational marketing strategyEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisCoregroup ofbeer brands distributedacrossmultiple marketsSupports brands with aggressive, multinational marketing strategy –high marketing expenditure 52%of total operating expenses in year 2011Distributed acrossAsia Pacific regionPortfolio of breweries via active acquisitionsEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisAcquisitions &DivestmentsINYEAR 2011•Divestment ofstakes inChinese brewery -newfocusonpremiumsegmentin China• Investment ina97.69%stake inbrewery in SolomonIslandsProduces multi-marketcoregroup ofbrandsLocalizedbeerbrands ineachcountryAccounting policy• Compliant with FRS– 2010: Only restatement for accounting policyTotal Equity($ ‘000)Currency TranslationDifference(20,045)Total Equity($ ‘000)Currency TranslationDifference(15,570)Share of JV andassociatedcompanies’ reserves(4,475)Other comprehensiveloss(20,045)Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisNocause for concernAccounting Policy• Depreciating for Fixed AssetsAPB Limited Useful lifeLeasehold Land Lease termBuilding 10-60 yrsPlant and Machinery 5-40 yrsOther fixed assetsMotor Vehicles 4-10 yrsOffice equipment,Furniture2-15 yrsOthers 5-20 yrsCarlsberg Useful lifeBuildings 20-40yrsTechnical installations 15 yrsBrewery Equipment 15 yrsFilling and Bottling Eqmt 8-15 yrsWarehouse Installations 8 yrsOn-trade dist. eqmt 5 yrsOther Plant and Eqmt 5-8 yrsReturnable packaging 3-10 yrsHardware 3-5 yrsEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSlight cause for concernAccounting Policy• Goodwill– Annual Impairment testsGoodwill Gained onacquisition (2010) = $417 millionChange innon-currentassets (2010) = $479 millionEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisNocause for concern41.5% increaseover 2009Quality of Disclosure• Less transparent segment reporting– 2010– 2011Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisNocause for concern, butnot positiveExport markets
    • 3/28/20123Quality of Disclosure• Discontinued operationsFRS 105: An entity shall classify a non-current asset as held for sale if itscarrying amount will be recovered principally through a sale transaction ratherthan continuing use.30 Sept 2009 Feb 2010Continuing OperationsStatus of 2 Indian subsidiaries:Asset fully disposed,sale completedEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSlight cause for concernEarnings Quality• Excellent EarningsQuality• AR accounts for:– Exceptional items (Disposal)– Strategic Thinking behind disposal2011Total Equity($ ‘000)Profit Before:TaxationExceptional Items619,178Exceptional Items 38,162Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSignals clarity &transparencyProfitability Analysis• (Net) Profit Margin increasing• Steady EBITDA Margin11.0%14.3%15.4%6.1%8.9%8.1%16.0%7.2%9.5%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%2009 2010 2011(Net) Profit MarginAPB Carlsberg Fosters19%22% 23%21% 22%20%31%16%70%0%10%20%30%40%50%60%70%80%2009 2010 2011EBITDA MarginAPB Carlsberg FostersEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisPositive signal for profitabilityOperating Efficiency Analysis• Higher total assets turnover & inventory turnover ratio thancompetitors9.418.37 8.696.777.44 7.441.371.82 1.800.002.004.006.008.0010.002009 2010 2011Inventory TurnoverAPB Carlsberg Fosters1.07 1.09 1.100.43 0.44 0.440.75 0.78 0.740.000.200.400.600.801.001.202009 2010 2011Total Assets TurnoverAPB Carlsberg Fosters GroupEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisPositive signal for operating efficiencyLiquidity Analysis• Low quick ratio, may signal liquidity risk• Strengthening current ratioCurrent Ratio2009 2010 2011 AverageAPB 1.13 1.16 1.40 1.23Carlsberg 0.59 0.57 0.71 0.63Fosters 4.03 4.42 3.66 4.04Quick Ratio2009 2010 2011 AverageAPB 0.37 0.37 0.38 0.37Carlsberg 0.42 0.38 0.49 0.43Foster‘s 1.77 2.20 1.59 1.85Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSignals liquidity risk, but nota causefor concernFinancial Stability Analysis• Debt to capital ratio more than doubled• Better liabilities to equity compared to Carlsberg• Altman Z-score = 8.02 (Low bankruptcy risk)Total Debt/Total Capital2009 2010 2011 AverageAPB 0.10 0.26 0.23 0.20Carlsberg 0.41 0.37 0.35 0.38Fosters 0.00 0.00 0.01 0.00Total Liabilities/Total Equity2009 2010 2011 AverageAPB 0.73 0.73 0.64 0.70Carlsberg 1.34 1.14 1.14 1.21Fosters 0.25 0.22 0.24 0.24Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysis0.38Positive signal for financial stability
    • 3/28/20124Forecast – Income Statement• Projected growth segmented by regions• 5 year CAGR used (except North Asia)• 3% terminal growth rateRevenueGrowth Projection ($ in 000,000)2007 2008 2009 2010 2011 CAGR (5 Yr)CAGRUsedSouth & Southeast Asia 514 548 548 769 979 17.49% 17.49%Indochina/Thailand 662 771 832 935 1,033 11.80% 11.80%North Asia 5 14 15 23 28 57.71% 26.33%Oceania 599 656 636 768 919 11.27% 11.27%Corporate Office 4 8 10 15 15 37.22% 37.22%Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisForecast – Balance Sheet• Most assets and liabilities items used average aspercentage of sales– Most figures fluctuated from year to year• Items not related to direct operations held constant– Joint venture, associated companiesEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisForecast – Assumptions validity• Actual future performance could differ significantly– Operates in highly volatile Asia-Pacific region– Aggressive expansion strategy• LT debt grew from S$24m to S$368m in year 2010Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisValuation - RIM$ in 000 2012F 2013F 2014F 2015F 2016FNet Income 334,854 379,409 430,559 489,366 557,083Beg BV 1,446,587 1,712,483 2,024,751 2,390,256 2,816,967Abnormal Earnings (NI - Costof Equity *BV) 256,738 286,935 321,223 360,292 404,966Shares Outstanding 258,200 258,200 258,200 258,200 258,200Abnormal EPS (AE/SharesOutstanding) 0.9943 1.1113 1.2441 1.3954 1.5684PV of Abnormal EPS 0.9640 1.0222 1.0857 1.1553 1.2321Sum of PV of EPS 5.4592PV of TV of A EPS 52.8758PV of all Abnormal EPS 58.3350Current Eq. BV 5.6026EstimatedCurrent Share Price(Feb 2012) 63.94TerminalGrowth3.00%Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisValuation - FCFFYear 2012 2013 2014 2015 2016EBIT 604,553 688,445 784,753 895,478 1,022,979Less : Tax 183,700 200,381 228,412 260,640 297,751Add: Depreciation +Amortisation 80,338 91,487 104,285 118,999 135,943Less : Change in WC 99,506 114,077 130,961 150,564 173,378Less : Cap Ex 110,340 131,178 155,101 182,604 214,274FCFF 291,346 334,296 374,565 420,669 473,519Fair Present Value ($ in 000, except Share Price)PV of FCF 1,611,692Terminal Value 22,169,283PV of Terminal Value 17,205,724Enterprise Value 18,817,416Add: Cash 90,060Less: Debt 434,629Fair Value of Equity 18,472,847Shares Outstanding 258,200Fair Value / Share (S$) 71.54Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSensitivity Analysis - RIMCost of EquityTerminalGrowthRates63.9376 5.40% 5.90% 6.40% 6.90% 7.40% 7.90% 8.40% 8.90% 9.40%1.00% 39.34 34.81 31.12 28.06 25.49 23.29 21.40 19.75 18.301.50% 43.13 37.66 33.32 29.80 26.87 24.41 22.31 20.50 18.922.00% 48.02 41.25 36.03 31.88 28.51 25.71 23.36 21.35 19.622.50% 54.61 45.90 39.44 34.45 30.48 27.26 24.59 22.34 20.423.00% 63.94 52.15 43.84 37.67 32.91 29.13 26.05 23.50 21.353.50% 78.18 61.00 49.76 41.84 35.95 31.41 27.80 24.87 22.444.00% 102.59 74.51 58.15 47.44 39.89 34.28 29.96 26.52 23.724.50% 154.12 97.68 70.96 55.38 45.19 38.00 32.66 28.55 25.275.00% 334.48 146.58 92.91 67.50 52.70 43.00 36.17 31.09 27.170.00100.00200.00300.00400.00SharePriceTerminal Growth1.00%1.50%2.00%2.50%3.00%3.50%4.00%0.00100.00200.00300.00400.00SharePriceCost of Equity5.40%5.90%6.40%6.90%7.40%7.90%8.40%Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysis
    • 3/28/20125Sensitivity Analysis - FCFFWACCTerminalGrowthRates5.20% 5.70% 6.20% 6.70% 7.20% 7.70% 8.20% 8.70% 9.20%1.00% 39.13 34.69 31.09 28.13 25.65 23.55 21.73 20.16 18.771.50% 43.95 38.41 34.04 30.52 27.62 25.19 23.12 21.34 19.792.00% 50.28 43.13 37.69 33.42 29.96 27.12 24.73 22.70 20.962.50% 58.94 49.34 42.33 37.00 32.80 29.41 26.62 24.28 22.293.00% 71.54 57.84 48.42 41.55 36.32 32.20 28.88 26.14 23.853.50% 91.56 70.21 56.77 47.53 40.79 35.66 31.62 28.36 25.674.00% 128.26 89.85 68.90 55.71 46.65 40.04 35.01 31.04 27.854.50% 217.39 125.86 88.18 67.62 54.69 45.80 39.31 34.37 30.485.00% 752.15 213.31 123.51 86.54 66.38 53.69 44.96 38.60 33.750.00100.00200.00300.00400.00SharePriceTerminal Growth1.00%1.50%2.00%2.50%3.00%3.50%4.00%0.00100.00200.00300.00400.00SharePriceWACC5.20%5.70%6.20%6.70%7.20%7.70%Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisSensitivity Analysis0.00100.00200.00300.00400.005.40%5.90%6.40%6.90%7.40%7.90%8.40%8.90%9.40%SharePriceTerminal Growth1.00%1.50%2.00%2.50%3.00%3.50%4.00%0.0050.00100.00150.00200.00250.00300.00350.00400.00SharePriceCost of Equity5.40%5.90%6.40%6.90%7.40%7.90%8.40%0.00100.00200.00300.00400.00SharePriceTerminal Growth1.00%1.50%2.00%2.50%3.00%3.50%4.00%0.00100.00200.00300.00400.00SharePriceWACC5.20%5.70%6.20%6.70%7.20%7.70%8.20%Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisFCFFRIMRelative ValuationEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisTechnical Analysis - IndicatorsMACD bullish/bearish crossoverRSI – trending along 50% markMomentum –trending along 0 pointEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisTechnical Analysis - ChartsIndicationTrending upwards alongthe support line whichindicates a positive outlookand upward movement inthe share price.Support line whichindicates an upwardstrending pattern along thisline.Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysisFlagSupportLineTest of Mean ReturnsHypothesis Testing :Null hypothesis : mean = 0 againstAlternative hypothesis : mean ≠ 0 at 95%significance levelSample Size: 816Sample Mean: 0.001473Std Deviation: 0.060123z statistic: 0.699871Given Z = 0.699871 < 1.96, there isinsufficient to conclude that the returnsdeviates from the zero. The means of thereturns is close to zero implies that the returnsare not very volatile in general , which wouldthus imply less risk.Economic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysis
    • 3/28/20126Conclusion• Economic• Industry• CompanyBusinessAnalysis• Accounting• Profitability• ValuationFinancialAnalysisEconomic &Industry AnalysisCompanyAnalysisAccountingAnalysisProfitability &Risk AnalysisRecommendationValuationAnalysis•Growth stage•Aggressive expansion strategy•Effective distribution channel•Conservative valuation with thelower of 0.5% decrease interminal growth or 0.5%increase in cost of equityAsia Pacific Breweries LimitedRecommend BUY with target price of $52Target Price: $ 52.00Current Price: $ 35.00Q&A Appendix: Relative ValuationCompanies PE PB P to CFO PS1 SAPPORO HOLDINGS LTD 37.37 0.92 5.11 0.252 KIRIN HOLDINGS CO LTD 133.13 1.06 4.57 0.433 ANHEUSER-BUSCH INBEV NV 19.71 2.61 7.83 2.504CHINA RESOURCESENTERPRISE 23.26 1.76 10.83 0.585 ASAHI GROUP HOLDINGS LTD 15.26 1.23 7.25 0.546 SABMILLER PLC 24.04 2.67 14.13 3.69PE PB P to CFO PSMean 42.13 1.71 8.29 1.33Median 23.65 1.49 7.54 0.56Min 15.26 0.92 4.57 0.25Max 133.13 2.67 14.13 3.69APB Per Share 2011 ratios Ratios Min Median Max MeanNet Profit After Tax Per Share 1.65 PE 25.24 39.12 220.21 69.68Net Book Value Per Share 5.21 PB 4.81 7.77 13.92 8.90Net CFO Per Share 1.84 PC 8.42 13.88 26.02 15.26Sales Per Share 10.71 PS 2.69 5.99 39.52 14.27Appendix: TA – IndicatorsInterpretation of IndicatorsMACDThe upwards move is called a bullish crossover and the downwards move abearish crossoverA crossing of the MACD line through zero happens when there is no differencebetween the fast and slow EMAs. A move from positive to negative is bearishand from negative to positive, bullish. Zero crossovers provide evidence of achange in the direction of a trend but less confirmation of its momentum than asignal line crossover.RSIRSI readings greater than the 70 level are considered to be in overboughtterritory, and RSI readings lower than the 30 level are considered to be inoversold territory. In between the 30 and 70 level is considered neutral, with the50 level a sign of no trend.MomentumWhen the momentum indicator crosses above the zero line. The crossing of thezero line implies that the price of the stock, future, or currency pair is reversingMomentum indicator crosses below the zero line. A cross of the zero line cangenerally mean two things: the future, currency pair, or stocks price has toppedout and is reversing or that the price has broken below recent lows, either way, abearish signal course, either by having bottomed out or by breaking out aboverecent highs, a bullish signal.