STOCK FOCUS: LT GROUP, INC. (LTG) ACCORD CAPITAL EQUITIES CORP MARCH 2015 STOCK FOCUS: LT GROUP, INC. (LTG) • LT Group, Inc. (LTG) is an investment holding company for Lucio Tan and his family’s various businesses. It is involved in consumer-related businesses and also engaged in banking, property development, and sugar. It owns or holds stake in the following: • Fortune Tobacco Corp - tobacco • Asia Brewery, Inc. - beverages • Tanduay Distillers, Inc. - distilled spirits, liquor • Philippine National Bank - banking • Eton Properties Philippines, Inc. - property development • Victorias Milling Corp - sugar STOCK FOCUS: LT GROUP, INC. (LTG) • FORTUNE TOBACCO CORP (FTC) • Fortune Tobacco merged with Philip Morris Philippines to become the country’s largest tobacco player with an 80% market share • Sells popular brands such as: Marlboro, Philip Morris, Champion, Hope and More • LTG has a 99.6% stake in FTC and contributes 9% of LTG’s income • Seeing sharp drop in income due to competition from illicit cigarette sales STOCK FOCUS: LT GROUP, INC. (LTG) • PHILIPPINE NATIONAL BANK (PNB) • The country’s 5th largest bank in terms of assets when combined with Allied Bank with PhP565 bn as of September 2014 • Has an extensive branch network here and abroad, boosted by its solid market share in the overseas remittance business • PNB is LTG’s largest revenue contributor with 47% of total last year STOCK FOCUS: LT GROUP, INC. (LTG) • ASIA BREWERY INC. (ABI) • Formerly a purely beer company to compete with San Miguel, ABI has diversified into the manufacture and sale of non- alcoholic beverages (bottled water, energy drinks, soft drinks) • Among its popular brands are: Colt 45, Coors Beer, Cobra, Virgin Cola, Summit, Absolute, 100Plus, etc. • ABI accounts for 27% of LTG’s revenues, the 2nd biggest STOCK FOCUS: LT GROUP, INC. (LTG) • TANDUAY DISTILLERS, INC. (TDI) • Wholly-owned subsidiary of LTG; the country’s 2nd largest distiller and leader in the local rum market with a 90% share • Its brands include: Tanduay Rhum, Gin Kapitan, Boracay Rhum, London Premium Dry, Companero Light Brandy, etc • The 3rd biggest revenue contributor with 22% of total last year but seeing weakness due to declining market share and tough industry competition STOCK FOCUS: LT GROUP, INC. (LTG) • ETON PROPERTIES • Develops residential condominiums, township projects, office and commercial spaces in Metro Manila and nearby provinces • Has access to Tan Group’s landbank for possible future development • 99.3% owned by LTG and accounts for 3% of total revenues STOCK FOCUS: LT GROUP, INC. (LTG) LTG REVENUE MIX • LTG is basically a bank that also sells drinks and liquor as these 1% three units make up 96% of revenues 3% 22% • Its conversion to a holding company and acquisition of Tan’s 47% other businesses made it one of the country’s largest conglomerate with a market cap of PhP174 bn 27% • Revenues from distilled spirits continue to weaken due to rising costs related to intense Banking competition Beverage Distilled Spirits Tobacco Property Source: LTG STOCK FOCUS: LT GROUP, INC. (LTG) LTG NET INCOME MIX • LTG derives three-fourths of its net income from banking 1% 9% • Beverage and distilled spirits account for a combined 16% of income; faces headwind from 16% intense industry competition from other beverage makers and excise taxes on alcoholic products 74% • Tobacco income continues to decline due to competition with illicit cigarette sales, growing popularity of e-cigarettes, and the Banking negative effect of excise taxes Beverage Tobacco Property Source: LTG VALUATION: COMPARATIVE ANALYSIS Market PE EV/ DIV cap ROE EBITDA (x) YIELD (P bn) (x) LT Group 174.2 39.4 3.9 6.1 0.9 Ayala Corp 453.4 27.2 11.4 18.4 0.7 JG Summit Holdings 480.6 26.7 9.3 17.3 0.3 San Miguel Corp 176.5 15.5 15.7 9.1 1.9 average 24.5 10.1 12.7 0.76 Source: Bloomberg VALUATION: SUM OF PARTS Market Cap Attributable Value per % owned (Pm) Value (Pm) share (P) Banking 57% 151,247 86,211 7.90 Beverages 99.7% 37,852 37,738 3.50 Tobacco 99.6% 18,335 18,262 1.66 Distilled Spirits 99% 7,190 7,118 0.66 Property 99% 1,669 1,652 0.15 Sugar 24% 11,881 2,851 0.26 Net cash 3,818 0.35 NAV 157,651 14.48 PRICE PERFORMANCE: LTG BREACHED MOVING AVERAGES HIGHER IN 2015 ALONG WITH BROAD MARKET RALLY Source: Bloomberg PRICE PERFORMANCE: BUT LTG HAS BEEN OUTPERFORMED BY THE PSEI AND CONGLOMERATE PEERS Source: Bloomberg PRICE PERFORMANCE: PNB ALSO UNDERPERFORMED VS PSEI AND BANKING SECTOR PEERS Source: Bloomberg STOCK FOCUS: LTG GROUP, INC. • LTG has seen its stock price gain 34% year-to-date to PhP16.10 as the market hits new record highs • However, its tobacco and distilled spirits units face difficulties from higher excise taxes, price wars due to intense competition, change in consumer habits • Property and sugar businesses are too small to make any significant impact; may rely on banking business for stability and growth • Valuation metrics puts LTG share price at a premium relative to peers (39x v 24x average) • Market price is also at a premium to its estimated NAV/share of PhP14.48 • Given limited income growth at its key tobacco and distilled spirits businesses and pricey valuation we rate LTG NEUTRAL. 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