Sector financial performance:

This company, grouped into distiller – spirits sector of alcoholic beverage industry, is a distiller of spirits alcohol.

This is growing sector with about 4% -10% growth in the past several years and a positive prospective future driven by stronger demand for premium spirits, especially brown spirits, in the next 5-8 years.

For the individual company, while the revenue and cash flow fluctuates due to the fluctuation of foreign exchanges, sales growth should be expected since the whole industry is providing favorable climate for companies with strong brands in premium spirits products in this sector. And this has been supported by continuingly increasing sales volume (organic, 3-5%) and rising price (2-3% annually) of typical companies in this sector in the past several years.

While volatile foreign currency and frequent acquisition activities created uncertainties for companies in terms of their profitability, the strong demand and thus continuingly increasing sales has helped generally improve margins of those companies. The typical gross margin is about 63% and operating margin about 28%.  

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Company performance:

It seems that the demand has been strong in the past several years as indicated by increase in both volume and price. Emerging market and above premium seem to performance much better than other categories.

For the first six months of fiscal 2019 compared with same period of 2018(ended 201801030)

Organic sales increased 5% due to increase of about 3% in volume and increase 2% in price/mix.

For fiscal 2018 compared with 2017(ended 20180430)

Organic sales increased 6% due to increase of 5% in volume and increase 2% in price/mix.

For fiscal 2017 compared with 2016(ended 20170430)

Organic sales increased 3% due to increase of 2% in volume and increase 2% in price/mix.

In the current situation, this company has experienced positive organic growth if we exclude effect, on sales, of the spinning off of some of its subsidiary and of exchange rate in 2016/15.

Because real sales number was down due to unfavorable exchange rate and also because of increased costs and acquisition, the calculated gross margin (excluded exercise tax) was down to about 67% in 2018. Accordingly, its operating margin was also down to about 33% during the same period, which are still on the top level among peers.

Stock price

Our relativity of valuation methods and analysis indicate that this stock is currently relatively fairly valued by the market with an enterprise price/EBI ratio of 37($47/share).