Emperador - UOB Kay Hian 2024-09-27: Weak 2Q24 Results As Demand Falls; Downgrade To SELL

• As there are no near-term catalysts and ongoing headwinds, we think that Emperador is overvalued at the current valuation levels. We downgrade Emperador to SELL.

Weak results, below expectations.

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• The soft top-and bottom line results were largely due to lower sales volumes for both the brandy and Scotch whisky segments along with increased operating and brand investment costs. As a result, 1H24 EBITDA and PATMI margins fell by 1.2ppt and 1.9ppt y-o-y respectively.

Soft quarter.

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• Management expects demand to pick up during the seasonally stronger 2H24.

Brandy: Underperformance as margins fell.

• 1H24 segmental revenue (-10.3% y-o-y) and PATMI (-11.5% y-o-y) were below our expectations, forming 41.4% and 33.8% of our full-year forecasts respectively. The underperformance was largely due to weaker demand and sales volumes as inflationary pressures dampened discretionary spending and customers traded down to lower-value alternatives. Furthermore, higher raw material costs compressed margins, with 1H24 gross margins falling 3.3ppt y-o-y.
• Although advertising and promotional (A&P) spending fell 28.9% y-o-y as the group reined in operating expenses, both 1H24 EBITDA and PATMI margins still tumbled 0.2ppt y-o-y. Similar to 1H24, both 2Q24 quarterly revenue (- 0.3% y-o-y) and PATMI (-6.8% y-o-y) also declined.

Expect better sequential performance.

• Read more at SGinvestors.io.

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-09-27 SGinvestors.io

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