Monday, October 17, 2011

Lion Brewery (Ceylon) PLC - BRS Equity Research

Stable revenue growth in FY 2012E and FY 2013E

We expect LION to post a revenue of LKR 15.06bn in FY 2012E. Growing local demand for soft liquor and the Company’s increasing focus on capacity expansion would create top line growth in our view. We expect Gross Profit margins to remain healthy at 34% in FY 2012E and 35% in FY 2013E . Our forecasts have factored in a price increase of 3% for both FY 2012E and FY 2013E.

Consistent healthy margins, EBIT margin 16% (FY 2012E)

The Company recorded a recurring EBIT of LKR 1.75bn for FY 2011. We expect the EBIT to reach LKR 2.40bn in FY 2012E. EBIT margins are expected to be 16% in FY 2012E and FY 2013E. We believe the Company will have to manage its administration and distribution cost in order to maintain margins.

EPS estimates – LKR 15.25 (FY 2012E) and LKR 22.21 (FY 2013E)

BRS adjusted EPS for LION stands at LKR 12.11 for FY 2011. We expect the EPS to reach LKR 15.25 (+26% YoY) by FY 2012E and LKR 22.21 (+44% YoY) by FY 2013E. DPS is maintained at LKR 4.00.

Valuation – Attractive, potential value of LKR 252.50

Our valuation is based on the free cash flow method. Based on our forecast the stock has a potential value of LKR 252.50 on a WACC of ~ 10.3% and terminal growth rate of 3%. The cost of equity is based on a beta of 0.87 (based on ASPI vs. stock price movements), risk free rate of 7.4% and an equity risk premium of 5%. The stock has a forward PE multiple of 13.0x on FY 2012E EPS of LKR 15.25 and the current price of LKR 198.00. Based on FY 2013E EPS the stock has a PE multiple of 8.9x. The Food and Beverage sector PE stands at 15.1x as at 13th October 2011.


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