Sober Longer

The alcoholic beverages market in the Philippines can be best described as robust and sundry with consumption trends influenced by disposable income, urban development and cultural celebrations. But there are business challenges hounding the industry that investors must be aware of. Emperador Inc (EMI) with an expansive geographical reach in terms of manufacturing, bottling and distributing distilled spirits and other alcoholic beverages available in more than 400 airport retail stores, 100 countries across 6 continents is exposed to systematic risk or risk inherent to the market such as geopolitical tensions and macroeconomic uncertainties. Depressed consumer spending, intense industry competition and disrupted supply chain had decreased gross income, operating income and net income while gross margin, operating margin and net margin decreased for the fifth consecutive year ending 31 December 2025. The business performance of EMI demonstrates that the deteriorating macroeconomic environment underscored by the escalating cost of doing business and weakening consumer spending is expected to become more pronounced over the next 12 months brought about by the unresolved war in the Middle East and European Peninsula which disrupted the supply chain and inflated the market prices of major commodities. Moreover, EMI continues to be challenged by heavy taxation and unstable policies which impact pricing and profitability while unlawful production and smuggling of alcoholic beverages undermine legitimate trade. The future will test whether EMI can blend aspirational branding with inclusivity as competition intensifies in both the alcoholic and non-alcoholic segments. Based on anecdotal evidence, brands that focus on unique flavors, local ingredients and premium offerings have significant growth potential. There is an opportunity to capitalize on the rising trend of cocktail culture with consumers in search of original and creative drinking experiences. Expanding into the online retail space and catering to export markets are other areas of potential growth. Although EMI is manned by capable and reputable founding members and management team as it was able to navigate through several geopolitical storms and macroeconomic crosswind in whatever shape or form, it must articulate to investors a definitive turnaround strategy that will address the business challenges and implement the necessary measures to increase revenue, decrease expenses, improve profitability and ensure lasting success. In as much as we want to commend EMI for being agile and responsive to changes in market conditions, consumer preferences and economic circumstances, we believe investors will remain sober longer than expected since a toast is put on hold until further notice.

Value Debate

What is fascinating about business valuation is that analysts will come up with opposing estimated economic values despite using the same financial information. This was the case of renowned stock brokerage companies, First Metro Securities Brokerage Corporation (FMSBC) and COL Financial Group Inc (CFGI), with the release of their respective business valuation on Ayala Land Inc (ALI). The business valuation debate did not start on the reasons behind the share price performance of ALI but from the scope and scale of the business conundrum hounding the company. The share price of ALI decreased by 34.08% from P22.45 on 29 December 2025 to P14.80 on 30 June 2026. Although both stock brokerage companies rated ALI with a buy recommendation, FMSBC fixed its share price target at P15.50 or a 4.73% upside while CFGI fixed its share price target at P33.70 or a 127.70% upside. The extensive discrepancy between the share price targets was the result of the contradictory interpretation and appreciation of the company financials and business potential. FMSBC stated that its low share price target is due to the high financing costs, low property demand and leveraged balance sheet while CFGI argued that its high share price target is due to the erroneous distress outlook, excessive negative sentiment and severe business undervaluation. FMSBC underscored the fact that the residential segment of the property industry was engulfed by high interest rates and low home purchases which persuaded ALI to suspend the construction of Laurean Residences in Makati City and to cancel the development of Katipunan Heights in Quezon City. It is worth mentioning that since its incorporation in 1988, a project suspension or a project cancellation by ALI is unheard of despite navigating through periods of decreasing economic growth or increasing inventory level. On the other hand, CFGI quantified the fact that ALI has an estimated P1 trillion in total assets, P86.3 billion in retained earnings and maintains an investment-grade credit profile which means that its business is facing a cyclical downturn rather than a financial distress. Its recurring leasing business from the operation of its industrial, commercial and hospitality properties produce enough cash flow to cover debt servicing requirements. To conclude this business valuation debate, we have made our own calculation using a discounted cash flow analysis and we have computed that the fair equity value per share of ALI is P28.39. We recommend ALI with a buy near the share price target of FMSBC and a sell near the share price target of CFGI. Case closed.

Tardy Monty

We have been commending the Securities and Exchange Commission (SEC) for being a government regulator of last resort in developing the capital markets, as it ensures shareholder protection, promotes corporate governance and increases investor confidence. It even fined the Capital Market Integrity Corporation (CMIC) for its repeated rule violations, raising questions over the self-regulatory status of the Philippine Stock Exchange (PSE). CMIC was established to act as the independent audit, surveillance and compliance arm of the PSE. But we were aghast when the SEC suspended the monthly penalties for late or non-filing of reportorial requirements, such as annual financial statements and general information sheets, as part of its efforts to reduce compliance costs and improve the ease of doing business. It is worth mentioning that the previous system imposed escalating charges based on the length of delay with each fraction of a month treated as a full month and penalties capped at 12 months of prolonged non-filing. Even before we reach the age of majority, we have been taught to be prompt on our respective endeavors whatever they may be and wherever we may be. We do understand that the SEC is implementing this order for the sake of ease of doing business through the reduction of compliance costs for companies. But what we do not understand is why the SEC would sacrifice corporate governance at the expense of the general public. In the case of public companies, the basic disclosure requirements are the submission of an annual report within 105 days after the end of the fiscal year and the quarterly reports within 45 days after the end of every quarter of the fiscal year. But these basic disclosure requirements are not basic for some public companies which cannot submit the periodic reports due to a broad range of unacceptable excuses that they blame on systematic risk or risk inherent to the market or unsystematic risk or risk inherent to the company. Instead of penalizing the late filers of basic disclosure requirements, the SEC is condoning the non-compliant public companies. Is the SEC becoming desperate to convince public companies to remain listed after a series of delistings? Perhaps the SEC should implement the best practices of the other stock exchanges in rewarding public companies that follow the rules while penalizing those who take advantage of the regulatory ambiguities.