Apb presentation eng leetanwong
0 likes635 views
This research report recommends buying shares of Asia Pacific Breweries Limited (APB) with a target price of $52. It summarizes APB's business overview, Porter's Five Forces analysis of the beer industry, APB's SWOT analysis, growth strategy of pursuing acquisitions and aggressive marketing, positive financial analysis findings regarding profitability, operating efficiency and stability, and provides 5-year forecasts and valuation using the residual income model to support the $52 target price.
Apb presentation eng leetanwong
- 1. 3/28/2012 1 Asia Pacific Breweries Limited ResearchAnalysts ENG You Si (Isaiah) | George LEE Ye Han Rachel TAN Si Jing | WONG Hong Wei Recommend BUY with target price of $52 APB Overview • Brewing and sale of beer and related products • Headquartered in Singapore • Over 40 Brands • Catering needs through 30 brewery operations Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Industry: Beverages (Alcoholic) Porter’s 5 Forces Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis 0 1 1 2 2 3 3 4 4 5 5 Beer IndustryIntensity of Competitive Rivalry Power of Suppliers Power of Buyers Threat of a New Entrant Threat of a Substitute Product HIGH LOW Porter’s 5 Forces Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Supplier Power: Low Largenumberof farmers as suppliers Lowswitching costs for brewers Buying Power: High Inelastic demandfor beer but low consumer brandloyalty Wholesalers:controlover purchases Retailers: limited shelf spaces & multiple brandsto choose from Threats of Substitutes: Medium Beer has strong consumptionposition But other alcoholics beverages(e.g. Spirits) have increased in consumption Beer brewers forced to adjust pricing Threats of New Entrants: Medium High fixed costs to invest in equipment, buildings,ingredients,recipes & HR for beer breweryproduction Small breweries are enter market only when offeringunique productsto niche markets Competitive Rivalry: High Breweriesproduceat near capacity to achieve EOS to overcome high fixed costs Many consolidatedto cut loss & reducecosts of production High costs of advertisingto differentiate products SWOT Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Strengths Consistent,high quality products Strong brand equity Significantflexibility for localization Weaknesses Small presence in top beer consuming countries Significantreliance on Tiger Beer brand Opportunities Increasing demand in: Emerging markets (Russia, India) Non-alcoholicbeverages Threats Government regulations Global economic slowdown Industry consolidationpushing prices down APB’s Objective Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis To be the leading brewery group in theAsia Pacific region
- 2. 3/28/2012 2 Aggressive multinational marketing strategy Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Coregroup ofbeer brands distributed acrossmultiple markets Supports brands with aggressive, multinational marketing strategy – high marketing expenditure 52%of total operating expenses in year 2011 Distributed across Asia Pacific region Portfolio of breweries via active acquisitions Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Acquisitions & Divestments INYEAR 2011 •Divestment ofstakes in Chinese brewery -new focusonpremium segmentin China • Investment ina 97.69%stake in brewery in Solomon Islands Produces multi-market coregroup ofbrands Localizedbeerbrands ineachcountry Accounting policy • Compliant with FRS – 2010: Only restatement for accounting policy Total Equity ($ ‘000) Currency Translation Difference (20,045) Total Equity ($ ‘000) Currency Translation Difference (15,570) Share of JV and associated companies’ reserves (4,475) Other comprehensive loss (20,045) Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Nocause for concern Accounting Policy • Depreciating for Fixed Assets APB Limited Useful life Leasehold Land Lease term Building 10-60 yrs Plant and Machinery 5-40 yrs Other fixed assets Motor Vehicles 4-10 yrs Office equipment, Furniture 2-15 yrs Others 5-20 yrs Carlsberg Useful life Buildings 20-40yrs Technical installations 15 yrs Brewery Equipment 15 yrs Filling and Bottling Eqmt 8-15 yrs Warehouse Installations 8 yrs On-trade dist. eqmt 5 yrs Other Plant and Eqmt 5-8 yrs Returnable packaging 3-10 yrs Hardware 3-5 yrs Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Slight cause for concern Accounting Policy • Goodwill – Annual Impairment tests Goodwill Gained on acquisition (2010) = $417 million Change in non-currentassets (2010) = $479 million Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Nocause for concern 41.5% increase over 2009 Quality of Disclosure • Less transparent segment reporting – 2010 – 2011 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Nocause for concern, butnot positive Export markets
- 3. 3/28/2012 3 Quality of Disclosure • Discontinued operations FRS 105: An entity shall classify a non-current asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than continuing use. 30 Sept 2009 Feb 2010 Continuing Operations Status of 2 Indian subsidiaries: Asset fully disposed, sale completed Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Slight cause for concern Earnings Quality • Excellent Earnings Quality • AR accounts for: – Exceptional items (Disposal) – Strategic Thinking behind disposal 2011 Total Equity ($ ‘000) Profit Before: Taxation Exceptional Items 619,178 Exceptional Items 38,162 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Signals clarity &transparency Profitability Analysis • (Net) Profit Margin increasing • Steady EBITDA Margin 11.0% 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 Margin APB Carlsberg Foster's 19% 22% 23% 21% 22% 20% 31% 16% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2009 2010 2011 EBITDA Margin APB Carlsberg Foster's Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Positive signal for profitability Operating Efficiency Analysis • Higher total assets turnover & inventory turnover ratio than competitors 9.41 8.37 8.69 6.77 7.44 7.44 1.37 1.82 1.80 0.00 2.00 4.00 6.00 8.00 10.00 2009 2010 2011 Inventory Turnover APB Carlsberg Foster's 1.07 1.09 1.10 0.43 0.44 0.44 0.75 0.78 0.74 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2009 2010 2011 Total Assets Turnover APB Carlsberg Foster's Group Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Positive signal for operating efficiency Liquidity Analysis • Low quick ratio, may signal liquidity risk • Strengthening current ratio Current Ratio 2009 2010 2011 Average APB 1.13 1.16 1.40 1.23 Carlsberg 0.59 0.57 0.71 0.63 Foster's 4.03 4.42 3.66 4.04 Quick Ratio 2009 2010 2011 Average APB 0.37 0.37 0.38 0.37 Carlsberg 0.42 0.38 0.49 0.43 Foster‘s 1.77 2.20 1.59 1.85 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Signals liquidity risk, but nota causefor concern Financial 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 Capital 2009 2010 2011 Average APB 0.10 0.26 0.23 0.20 Carlsberg 0.41 0.37 0.35 0.38 Foster's 0.00 0.00 0.01 0.00 Total Liabilities/Total Equity 2009 2010 2011 Average APB 0.73 0.73 0.64 0.70 Carlsberg 1.34 1.14 1.14 1.21 Foster's 0.25 0.22 0.24 0.24 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis 0.38 Positive signal for financial stability
- 4. 3/28/2012 4 Forecast – Income Statement • Projected growth segmented by regions • 5 year CAGR used (except North Asia) • 3% terminal growth rate RevenueGrowth Projection ($ in 000,000) 2007 2008 2009 2010 2011 CAGR (5 Yr) CAGR Used South & 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 Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Forecast – Balance Sheet • Most assets and liabilities items used average as percentage of sales – Most figures fluctuated from year to year • Items not related to direct operations held constant – Joint venture, associated companies Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Forecast – 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 2010 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Valuation - RIM $ in '000 2012F 2013F 2014F 2015F 2016F Net Income 334,854 379,409 430,559 489,366 557,083 Beg BV 1,446,587 1,712,483 2,024,751 2,390,256 2,816,967 Abnormal Earnings (NI - Cost of Equity *BV) 256,738 286,935 321,223 360,292 404,966 Shares Outstanding 258,200 258,200 258,200 258,200 258,200 Abnormal EPS (AE/Shares Outstanding) 0.9943 1.1113 1.2441 1.3954 1.5684 PV of Abnormal EPS 0.9640 1.0222 1.0857 1.1553 1.2321 Sum of PV of EPS 5.4592 PV of TV of A EPS 52.8758 PV of all Abnormal EPS 58.3350 Current Eq. BV 5.6026 EstimatedCurrent Share Price (Feb 2012) 63.94 Terminal Growth 3.00% Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Valuation - FCFF Year 2012 2013 2014 2015 2016 EBIT 604,553 688,445 784,753 895,478 1,022,979 Less : Tax 183,700 200,381 228,412 260,640 297,751 Add: Depreciation + Amortisation 80,338 91,487 104,285 118,999 135,943 Less : Change in WC 99,506 114,077 130,961 150,564 173,378 Less : Cap Ex 110,340 131,178 155,101 182,604 214,274 FCFF 291,346 334,296 374,565 420,669 473,519 Fair Present Value ($ in '000, except Share Price) PV of FCF 1,611,692 Terminal Value 22,169,283 PV of Terminal Value 17,205,724 Enterprise Value 18,817,416 Add: Cash 90,060 Less: Debt 434,629 Fair Value of Equity 18,472,847 Shares Outstanding 258,200 Fair Value / Share (S$) 71.54 Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Sensitivity Analysis - RIM Cost of Equity Terminal Growth Rates 63.9376 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 18.30 1.50% 43.13 37.66 33.32 29.80 26.87 24.41 22.31 20.50 18.92 2.00% 48.02 41.25 36.03 31.88 28.51 25.71 23.36 21.35 19.62 2.50% 54.61 45.90 39.44 34.45 30.48 27.26 24.59 22.34 20.42 3.00% 63.94 52.15 43.84 37.67 32.91 29.13 26.05 23.50 21.35 3.50% 78.18 61.00 49.76 41.84 35.95 31.41 27.80 24.87 22.44 4.00% 102.59 74.51 58.15 47.44 39.89 34.28 29.96 26.52 23.72 4.50% 154.12 97.68 70.96 55.38 45.19 38.00 32.66 28.55 25.27 5.00% 334.48 146.58 92.91 67.50 52.70 43.00 36.17 31.09 27.17 0.00 100.00 200.00 300.00 400.00 SharePrice Terminal Growth 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 0.00 100.00 200.00 300.00 400.00 SharePrice Cost of Equity 5.40% 5.90% 6.40% 6.90% 7.40% 7.90% 8.40% Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis
- 5. 3/28/2012 5 Sensitivity Analysis - FCFF WACC Terminal Growth Rates 5.20% 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 18.77 1.50% 43.95 38.41 34.04 30.52 27.62 25.19 23.12 21.34 19.79 2.00% 50.28 43.13 37.69 33.42 29.96 27.12 24.73 22.70 20.96 2.50% 58.94 49.34 42.33 37.00 32.80 29.41 26.62 24.28 22.29 3.00% 71.54 57.84 48.42 41.55 36.32 32.20 28.88 26.14 23.85 3.50% 91.56 70.21 56.77 47.53 40.79 35.66 31.62 28.36 25.67 4.00% 128.26 89.85 68.90 55.71 46.65 40.04 35.01 31.04 27.85 4.50% 217.39 125.86 88.18 67.62 54.69 45.80 39.31 34.37 30.48 5.00% 752.15 213.31 123.51 86.54 66.38 53.69 44.96 38.60 33.75 0.00 100.00 200.00 300.00 400.00 SharePrice Terminal Growth 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 0.00 100.00 200.00 300.00 400.00 SharePrice WACC 5.20% 5.70% 6.20% 6.70% 7.20% 7.70% Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Sensitivity Analysis 0.00 100.00 200.00 300.00 400.00 5.40% 5.90% 6.40% 6.90% 7.40% 7.90% 8.40% 8.90% 9.40% SharePrice Terminal Growth 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00 SharePrice Cost of Equity 5.40% 5.90% 6.40% 6.90% 7.40% 7.90% 8.40% 0.00 100.00 200.00 300.00 400.00 SharePrice Terminal Growth 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 0.00 100.00 200.00 300.00 400.00 SharePrice WACC 5.20% 5.70% 6.20% 6.70% 7.20% 7.70% 8.20% Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis FCFF RIM Relative Valuation Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Technical Analysis - Indicators MACD bullish/bearish crossover RSI – trending along 50% mark Momentum –trending along 0 point Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Technical Analysis - Charts Indication Trending upwards along the support line which indicates a positive outlook and upward movement in the share price. Support line which indicates an upwards trending pattern along this line. Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis Flag Support Line Test of Mean Returns Hypothesis Testing : Null hypothesis : mean = 0 against Alternative hypothesis : mean ≠ 0 at 95% significance level Sample Size: 816 Sample Mean: 0.001473 Std Deviation: 0.060123 z statistic: 0.699871 Given Z = 0.699871 < 1.96, there is insufficient to conclude that the returns deviates from the zero. The means of the returns is close to zero implies that the returns are not very volatile in general , which would thus imply less risk. Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis
- 6. 3/28/2012 6 Conclusion • Economic • Industry • Company Business Analysis • Accounting • Profitability • Valuation Financial Analysis Economic & Industry Analysis Company Analysis Accounting Analysis Profitability & Risk Analysis Recommendation Valuation Analysis •Growth stage •Aggressive expansion strategy •Effective distribution channel •Conservative valuation with the lower of 0.5% decrease in terminal growth or 0.5% increase in cost of equity Asia Pacific Breweries Limited Recommend BUY with target price of $52 Target Price: $ 52.00 Current Price: $ 35.00 Q&A Appendix: Relative Valuation Companies PE PB P to CFO PS 1 SAPPORO HOLDINGS LTD 37.37 0.92 5.11 0.25 2 KIRIN HOLDINGS CO LTD 133.13 1.06 4.57 0.43 3 ANHEUSER-BUSCH INBEV NV 19.71 2.61 7.83 2.50 4 CHINA RESOURCES ENTERPRISE 23.26 1.76 10.83 0.58 5 ASAHI GROUP HOLDINGS LTD 15.26 1.23 7.25 0.54 6 SABMILLER PLC 24.04 2.67 14.13 3.69 PE PB P to CFO PS Mean 42.13 1.71 8.29 1.33 Median 23.65 1.49 7.54 0.56 Min 15.26 0.92 4.57 0.25 Max 133.13 2.67 14.13 3.69 APB Per Share 2011 ratios Ratios Min Median Max Mean Net Profit After Tax Per Share 1.65 PE 25.24 39.12 220.21 69.68 Net Book Value Per Share 5.21 PB 4.81 7.77 13.92 8.90 Net CFO Per Share 1.84 PC 8.42 13.88 26.02 15.26 Sales Per Share 10.71 PS 2.69 5.99 39.52 14.27 Appendix: TA – Indicators Interpretation of Indicators MACD The upwards move is called a bullish crossover and the downwards move a bearish crossover A crossing of the MACD line through zero happens when there is no difference between the fast and slow EMAs. A move from positive to negative is bearish and from negative to positive, bullish. Zero crossovers provide evidence of a change in the direction of a trend but less confirmation of its momentum than a signal line crossover. RSI RSI readings greater than the 70 level are considered to be in overbought territory, and RSI readings lower than the 30 level are considered to be in oversold territory. In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend. Momentum When the momentum indicator crosses above the zero line. The crossing of the zero line implies that the price of the stock, future, or currency pair is reversing Momentum indicator crosses below the zero line. A cross of the zero line can generally mean two things: the future, currency pair, or stock's price has topped out and is reversing or that the price has broken below recent lows, either way, a bearish signal course, either by having bottomed out or by breaking out above recent highs, a bullish signal.