Philippines

Ginebra San Miguel (GSMI PM)

The world’s largest gin producer at 7x P/E

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Ginebra San Miguel (GSMI PM - US$838 million) is the leading gin producer in the Philippines. It’s also the largest gin producer globally, selling 37 million cases annually.

The company dominates the gin market with an estimated 95% market share. But if you define the spirits market more broadly, there is competition from rum (Tanduay) and brandy (Emperador). Geographically, gin is more popular on the northern island of Luzon, while rum is more popular in the southern parts of Visayas and Mindanao.

The biggest draw of Ginebra is the low price. A 700ml bottle of gin costs 120 Philippine pesos, or roughly US$2. The taste is a bit rough around the edges, but for the price — I can’t complain.

The way Ginebra can achieve this low price is through scale. It owns a large distillery and five bottling plants strategically located nationwide. It has a distribution network with 141,000 points of sale. It also enjoys consumer mindshare through a 190-year-old brand that’s become almost synonymous with gin itself. And finally, it owns the leading basketball team in the Philippines, providing free marketing for the product.

Gin in the Philippines remains a growth story. Spirits consumption still lags that of Thailand and many Western countries. The demographics are excellent, with a fast-growing drinking-age population. Ginebra’s yearly top-line growth over the past five years has been +16%, driven by high single-digit volume growth plus price increases.

The analysts at Smartkarma have been all over the stock since 2021. There have also been a few write-ups at Value Investors Club. They correctly predicted that Ginebra would regain market share after its failures in the early 2010s when it faced strong competition from brandy product Emperador Light. New General Manager Emmanuel Macalalag has been able to premiumize the product offering and grow volumes while keeping costs in check. That has led to margin expansion and rapidly growing profits.

On my projection, with +11% yearly top-line growth and some further margin expansion, I get to a 2025e P/E ratio of 6.6x. With management’s new guidance of a 50% dividend payout ratio, I get to a forward dividend yield of 7.6%.

The stock has traded around 8x P/E for over half a decade. Many ask themselves why investors aren’t willing to pay for the stock.

From what I can tell, controlling shareholder Ramon Ang seems to have a decent reputation. He was hand-picked by Marcos's crony Eduardo Cojuangco to run the company and has done an excellent job at it.

There are recurring related party transactions between the ListCo and the packaging arm of parent San Miguel, though these are not necessarily detrimental to minority shareholders. The 2008 purchase and subsequent sale of San Miguel’s non-alcoholic beverages business does look odd, costing the ListCo about PHP 3 billion.

Whether these problems are enough to warrant a 50%+ discount to the valuation multiples of Ginebra San Miguel’s peer group is unclear. I’m personally impressed by Emmanuel Macalalag and consider him a safe pair of hands. The foreign ownership is only 5.4%. Who knows, perhaps foreign investors could warm up to owning the shares again.

The most popular international retail brokers to buy Philippine stocks include Monex Boom Securities in Hong Kong and Phillip Securities in Singapore. The full list of brokers able to assist you with buying Philippine stocks is available here.