14 July 2014 Asia Pacific/Philippines Equity Research Conglomerates LT Group, Inc. (LTG.PS / LTG PM) Rating OUTPERFORM* [V] Price (11 Jul 14, P) 15.22 INITIATION Target price (P) 20.20¹ Upside/downside (%) 32.7 Tobacco turnaround Mkt cap (P mn) 164,702 (US$ 3,791) Enterprise value (P mn) 179,870 ■ Initiate with OUTPERFORM. We initiate coverage on LT Group with an Number of shares (mn) 10,821.39 Free float (%) 25.6 OUTPERFORM rating and a P20.2 target price, implying 33% potential 52-week price range 24.9 - 13.3 upside. The company's tobacco business is the key driver of our target price ADTO - 6M (US$ mn) 3.2 and 2015 net income forecast, at 57% and 50%, respectively. *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ■ Tobacco business should lead the group's profit recovery. We estimate ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix). that the tobacco business (PMFTC) will contribute P5.8 bn, up 609% YoY, to the company's consolidated net income in 2015. Consequently, this should Research Analysts result in a consolidated net income of P11.5 bn in 2015E, up 86% YoY. Alvin Arogo There would be another round of predetermined excise tax increase in 63 2 858 7716
[email protected] 2015E, but it should be lower than what has been implemented in 2014E Danielo Picache and 2013A. We believe that this will provide room for the company to 63 2 858 7758 potentially implement a pricing strategy that will allow it to improve PMFTC's
[email protected] gross profit and EBIT margin, which we forecast will expand to 25.4% and 12.8%, respectively.