Macquarie Research Equities gave San Miguel Brewery Inc. (SMB) an "underperform" rating and a target share price of P8.30, down 23 percent from its current market value of P10.25, saying the domestic beer market offers the company only few opportunities for growth.
"Parent San Miguel Corp.'s (SMC) decision to spin off its core brewery business last year and move into higher growth areas of power and infrastructure is evidence of a declining industry," Macquarie said in a research note.
Macquarie noted that SMB's growth over the past years has come from gains in market share over closest competitor, Asia Brewery.
However, with a 95 percent share of the $1 billion local beer market already, "SMB may find it hard to achieve any further growth through brand dominance," said Macquarie.
Macquarie said that while SMB would benefit from the cut in corporate income tax rate from 35 to 30 percent this year, its earnings could grow by only 4.3 percent because of more downward pressure.
The research firm said SMB's volume expansion would likely slow to 1.5 percent and its gross margins would shrink because of the twin impact of the higher excise tax on beer and a slowdown in consumption.
SMB earlier reported its net income rose 25.3 percent to P10.04 billion last year, owing to"a tighter focus on cost control, with good progress on efficiency and volume generating programs."
SMB's profitability and market share dominance prompted Japan's Kirin Holdings Co. Ltd. (Kirin) to take interest in the beer company. Kirin is in an exclusive negotiation with SMC for the potential acquisition of 43.25 percent of the issued and outstanding capital stock of SMB.
Macquarie said the planned purchase would be a net positive for SMB over the medium term, "although it does not affect our fundamental earnings outlook for this year."
"As a second-largest brewer in Japan, Kirin can add value to SMB in terms of strategic international presence, improved corporate governance and cost sourcing advantages," it added.
SMB recently approved a plan to raise up to P38.8 billion through what would be the country's biggest corporate bond issue ever.
The company would use proceeds to buy up the beer brands, intellectual property rights and real estate of its parent.