l Lion Brewery (Ceylon) PLC, the 50.4% owned subsidiary of Ceylon Brewery [BREW: LKR120.00], controls approximately 86% of the Sri Lankan beer market. It brews, bottles and markets its own LION brand of beers and stouts, as well as Carlsberg beers (under the license of Carlsberg InternationalofDenmark).
l With the end of the military conflict, we expect strong revival in demand for soft alcohol/beer, underpinned by opening up of new markets in the northern and eastern provinces, a likely sharp increase in tourist arrivals, increase in demand for recreation activity and the rising in disposable incomes. In line with anticipated market growth, LION too is expanding its capacity by more than 50% in FY11E.
l LION has also begun to invest in a number of new breweries in India together with Carlsberg in order to exploit the vast untapped market in the sub-continent. LION has effective ownership of 22.5% of South Asian Breweries Limited, which has already constructed five breweries in India.
l We believe LION is on the course to a sharp revival in profitability with FY10E net profit forecast to to grow eight fold YoY to LKR437.0 mn (Vs LKR45.1 mn in FY09) and FY11E net earnings projected to grow by 30.1% YoY to LKR568.6 mn.
l The share is attractive on 13.7X forecast FY10E net profit and 10.6X projected FY11E earnings, trading at 1.4X PBV. BUY
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