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.