Emperador’s year?

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First Metro Securities Brokerage Corp. has issued a buy recommendation for Emperador Inc. (EMI), projecting that the liquor maker’s stock price at the Philippine Stock Exchange will rise to P18.90 (it closed at P15.34 last Dec. 22) due to what they see as a brandy renaissance.

In a report written by Estella Dhel Villamiel and Mark Angeles, they cited projections that point to a 20 percent growth in brandy revenues for 2026 that will come from new product sales.

Likewise, FirstMetroSec has adopted a new valuation framework approach using a sum-of-the-parts (SOTP) methodology. In their report, they expressed their view that the SOTP better reflects the distinct growth and value creation dynamics of EMI’s two core businesses.

They noted that the  brandy segment is cash-generative and volume-driven, anchored primarily in Philippine consumption, while the whisky business is asset-heavy and benefits from time appreciation and luxury economics.

They acknowledged that while the segment faced headwinds from competitively priced players such as Alfonso brandy and other spirits, management expects brandy revenue to grow by 20 percent  in 2026, supported by strong product momentum and portfolio innovation.

Growth drivers, they said, would  include Fundador Super Special, which is an affordable premium brand that has gained significant traction, driving volume this year.

EMI management, they said, highlights a 40 to 50 percent  growth in the third quarter alone, underscoring its success in capturing the value-conscious segment.

Another product, CLVB EMPI, is a competitively priced, smooth brandy targeting younger consumers, particularly Gen Z. Since its soft launch in March this year, the product has received positive reviews and strong demand signals, with large orders from retailers and on-premise establishments ahead of its official launch next year.

Thus, FirstMetroSec anticipates a recovery in volumes and an improved product mix which should drive margin expansion. In view of positive operating leverage, the brokerage arm of the Metrobank Group forecasts a 20 percent EBITDA (earnings before interest, taxes, depreciation and amortization) CAGR (compound annual growth rate) over the next two years, positioning the brandy segment for sustained growth despite competitive pressures.

The report further elaborated that for the whiskey segment, they shifted their  valuation framework to incorporate both brokerage value and the intangible brand assets of the Whyte & Mackay Group (WMG).

The dual approach, they explained, better reflects the unique economics of whiskey as an appreciating commodity and the luxury positioning of WMG’s portfolio.

They used brokerage value as a baseline, citing that according to management, EMI’s whisky inventory has a brokerage value of 1.4 billion British pounds.

As casks age, whiskey becomes rarer and more desirable. Brokerage markets capture this appreciation curve in real time, unlike accounting inventory, carried at cost. Thus, assuming the company liquidates all whisky inventory today, this means EMI could realize approximately P110 billion in value from liquid alone, before factoring in brand premiums and luxury positioning.

FirstMetroSec’s  valuation assumes the segment’s brokerage value will grow by 10 percent per annum in the next two years, reflecting a more modest clip than recent history (having grown by 16.5 percent CAGR since 2014).

Furthermore, the report said: “Beyond liquid value, WMG’s brands, anchored by Dalmore, behave like luxury houses. Controlled allocations, limited editions, and global story-telling allow these brands to command significant premiums. This transforms whisky from a commodity into a luxury product, enabling gross margins of  about 40 percent on bottled sales. We remind that ultra-premium single malt whiskey exhibits Giffen good dynamics, where demand rises as prices increase due to exclusivity and perceived prestige.”

“To factor this, we apply the Royalty Relief Method, answering a simple but powerful question: If EMI didn’t own these brands, what royalty would it pay to license them from someone else? Dalmore’s global prestige and ultra-premium positioning places EMI alongside luxury spirits peers such as The Macallan, justifying a valuation approach that goes beyond liquid value.”

Additionally, the report said: “The Keevee Industry Guide notes that royalty rates for food and beverage products typically range between two to eight percent  of gross sales, with luxury and highly recognizable brands negotiating at the upper end of the spectrum. For our model, we assume a six percent royalty rate applied to whisky segment sales. We then discount this projected royalty stream using a DCF (or discounted cash flow)  approach to arrive at the implied brand value embedded in Whyte & Mackay’s portfolio.”

FirstMetroSec, however, acknowledged that the whiskey and brandy segment faced demand headwinds and tariff-related pressures this year, but the brokerage firm expects a rebound in whiskey growth to be supported by premiumization trends, a more favorable global macroeconomic environment, and the continued emergence of a whiskey-drinking middle class in China.

With 2025 as a new base for the segment, FirstMetroSec is forecasting  a modest seven percent revenue CAGR for 2026 and 2027, “with improved volumes resulting in slight EBIT margin expansion during our forecast period.”

But to be more bullish, FirstMetroSec admitted that they would prefer to see the brandy segment recording meaningful market share gains in the domestic spirits market. The success of brand-building efforts is paramount to protect market share in the face of competition and shifts in consumer preferences

Likewise, they said they would also like to see a more pronounced recovery in the global premiumization trajectory, especially in WGM’s core markets (i.e. China, the UK) and supported by expansion into new markets, such as India, where the segment has recently experienced significant growth amid urbanization and the rising consumption and preference for premium alcoholic beverages.

Lastly, they cited their preference for improved product mix and margins. A 50:50 revenue mix between the brandy and whiskey segments should result in higher blended margins.

Covering all scenarios, the report acknowledged that more losses in brandy market shares, further deterioration in global spirits’ demand, regulatory headwinds (especially tariffs) and foreign exchange volatility could be risk factors.