Kirin deal to open new growth venues for SMC

A leading global financial services firm, UBS Warburg, said San Miguel Corp.’s profile as an acquirer in the Asian food and beverage arena will be given a lift by Kirin Brewery Co. Ltd.’s planned capital infusion, and provide San Miguel with new avenues for growth.

A research by UBS Warburg’s local unit noted that "in the short history (since 1998) of Eduardo M. Cojuangco Jr.’s management, the company has made six acquisitions," and that these investments have started bearing fruit. It cited increased working capital efficiency, improved product positioning and better logistics as boosting shareholder returns following SMC’s recent investments in the food and carbonated drinks businesses. It also said J. Boag & Son’s gross margins expanded from 40 percent in 2000 to 44 percent in 2001 after the Australian brewer was purchased by SMC.

Maintaining a "buy" rating on San Miguel shares, the study concluded the Kirin buy-in would allow SMC to add more return-enhancing acquisitions to its food and beverage portfolio. San Miguel should once again have over $1 billion in investible funds after Kirin’s planned capital infusion, the study said.

"SMC’s track record shows the company’s ability and speed at concluding even the more complicated deals," UBS Warburg observed.

It estimated that SMC B shares offer a 20-percent upside potential since its current price has yet to reflect the benefits of the company’s recent acquisitions and potential overseas investments. UBS Warburg has upgraded its target price on SMC B share from P60 to P71 to reflect this "new project opportunity premium" for the company.