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A liquor distributor with momentum—at least in the numbers
The Keepers Holdings’ 9M 2025 report (ending Sept. 30, 2025) reads like a company still riding demand rather than being dragged by it: net sales rose 14.4% to ₱13.39B, and net income increased 12.0% to ₱2.43B. Management pins the growth on a 16% increase in cases sold, with Brandy doing the heavy lifting—about 80% of sales value and 84% of volume.
The first crack: margins slipped while volumes climbed
The story isn’t “weak,” but it is less clean than the topline suggests. Gross profit increased to ₱3.67B, yet gross margin eased to 27.4% from 28.2% a year earlier. Similarly, operating income rose to ₱2.62B, but operating margin dipped to 19.6% from 20.5%.
Management points to product mix and the effect of higher foreign exchange rates during the period as contributors to cost behavior. In practical terms, this is what happens when a distributor grows but has to spend a little more—whether in procurement costs, logistics, or brand support—to keep the same pace.
The second crack: operating expenses outpaced operating profit
Operating expenses rose 16.1% to ₱1.04B, faster than the 9.4% increase in operating income—classic negative operating leverage in a growth year. The breakdown shows higher spending in advertising and distribution, plus a jump in taxes and licenses.
That isn’t necessarily bad—many consumer distributors “spend to defend” share during expansion—but it is a reminder that Keepers’ margin profile, however enviable, is not immune to the cost side of scale. The next key question is whether this spending produces durable volume gains or becomes a permanently higher cost base.
Inventory: not ballooning—actually down—but the mix deserves monitoring
Concerns about “slowing alcohol sales” often show up first in inventory. Here, the numbers are reassuring: inventories were ₱5.20B as of Sept. 30, 2025, down 11.4% from ₱5.88B at end-2024. That’s the opposite of “stock piling up.”
Yet composition matters. The inventory note shows spirits on-hand fell, while spirits in-transit rose versus end-2024—suggesting less warehouse stock but more goods moving through the pipeline at quarter-end. Add that the company states Q4 is peak season, and some pipeline build can simply be timing ahead of holiday demand. Still, if the market really slows, “in-transit” can become “on-hand” quickly—so this is a watch item, not a red flag.
The market narrative: growth moderating doesn’t equal collapse
Outside the company, the alcohol market conversation is mixed: some industry research highlights challenging conditions and softer growth in imports in recent periods, implying the sector can face uneven demand. Meanwhile, other market outlooks still project continued growth for the Philippine alcoholic beverage market, albeit at more moderate rates over the medium term.
This tension is important. A “slower market” doesn’t automatically punish the category leader—sometimes it benefits the best distributor, because brands consolidate with scale partners and retail networks favor reliable supply. But it does raise the bar on execution: when easy growth fades, cost discipline and mix management determine whether margins hold or drift.
Balance sheet strength: the dividend’s quiet ally
If there’s a genuine comfort point in the filing, it’s financial flexibility. Keepers ended the period with ₱6.56B in cash and cash equivalents, up 33.8% versus end-2024, while loans payable were just ₱80M. Liquidity remains high with a 4.20x current ratio, and leverage modest per the company’s reported capital ratios.
Cash flow also supports the narrative: net cash from operations was ₱3.67B for 9M 2025. That matters because dividends don’t come from accounting profits alone; they come from cash generated after working capital and taxes.
Dividend and valuation: the stock as an “income plus” proposition
Keepers declared and paid a ₱0.12/share cash dividend in 2025 (ex-date May 5, 2025, payable May 30, 2025). Using the PSE Edge last traded price of ₱2.41 (mid‑Jan 2026), that implies a ~5.0% trailing yield (author’s calculation).
Valuation looks “reasonable, not screaming cheap” for an earners-and-dividend name. With BVPS at ₱1.25, the stock trades around ~1.9x P/B at ₱2.41 (author’s calculation). Using the 9M EPS of ₱0.17 and a simple run-rate annualization, the market is effectively pricing KEEPR at around a low double-digit P/E range (author’s calculation)—in line with what a stable consumer distributor might command, especially with strong liquidity.
For dividend-oriented investors, the key is not just the yield but the room to sustain it: retained earnings are still sizable (₱12.0B), and the period saw meaningful operating cash flow.
So—is there weakness? Yes, but it’s the “edges,” not the core
If you’re hunting for weakness, it’s here: margins slipped, opex ran ahead of operating profit, and FX dynamics turned into a headwind in “other income.” Add a strategic vulnerability: the company’s sales are highly concentrated in brandy, which is great when the category is hot—and riskier if consumer preference shifts.
But the core still looks intact: sales volumes rose, inventory did not balloon, cash increased, and the dividend remains supported by liquidity and cash generation. In other words, Keepers’ 9M report is less a warning siren than a reminder that even “defensive growth” has moving parts—especially when FX, logistics, and marketing intensity are in play.
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Annualizing 9m eps is probably the wrong approach; KEEPR's earnings are highly seasonal with 4Q earnings typically >70% higher than other quarters. That would bring your trailing P/E closer to 8-9 and your forward P/E closer to 7-8.
ReplyDeleteThe company is a cash cow. The challenge is convincing management to pay out more. This has always been the disease with Lucio Co companies. Nevertheless, ~5.7% yield with 10% normalized growth is not too bad at all.
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ReplyDeleteCorrect you can't annualize 9m EPS in a seasonal company. This isn't your normal company though - this is the only alcohol company with supply chain and distribution superiority.
ReplyDeleteThe two sectors that have not been touched (but are profitable in other countries are): Alcopops and Premium beer. Heineken does have a significant foothold in S.E. Asia (just not here).