Henry Sy’s entry opens new growth platform for San Miguel

The recent acquisition of SM Investments Corp. of a minority stake in San Miguel Corporation (SMC) provides another platform for growth for SMC, top securities firms said, adding that the buy-in manifests investor confidence in SMC’s management.

Multinational fund manager CLSA Emerging Markets, for one, sees significant benefits to San Miguel’s products and shareholders from the alliance of SMC chairman and chief executive officer Eduardo M. Cojuangco Jr. and retail tycoon Henry Sy of SM Investments. "You have two industrialists who have seen the peak and trough of the Philippine economy and (who are) very knowledgeable on the changing lifestyle of the Filipino Consumers," said CLSA which upgraded its rating on SMC shares to "outperform." Sy’s SMC investment is also a "seal of good housekeeping" for Cojuangco and SMC management, it added.

JP Morgan, another large securities firm, said the transaction that would give SM Investments a seat in SMC’s 15-man board, is a very good indication that could spark the interest of foreign investors. Maintaining a "buy" recommendation on SMC, JP Morgan noted that the deal is a very good way of showing that SMC management will look after minority interests, especially since Sy has a reputation as a champion of corporate governance. The purchase, likewise, comes at a time when SMC is poised for major profit growth in 2003, the securities firm added.

ABN-Amro also tagged a "buy" rating on SMC and set a target price of P70 per B share. "The entry of Sy in SMC reflects a vote of confidence on the company and its management," the securities firm said.

Asiasec Equities, for its part, said operational synergies would allow SMC to tap into Sy’s large retail network that includes a nationwide chain of SM shopping malls and supermarkets. SMC has 89 facilities across the Philippines producing a wide range of consumer products including beverages, poultry products, processed meat and dairy products.

"The broad scope of strong products possessed by SMC will be assured of premium shelf space in the major SM distribution channels," the securities firm noted as it maintained a "buy" recommendation on SMC shares.

Another fund manger, KGI Securities (Phils) Inc. likewise sees the SM Investments deal as an opportunity for SMC to gain more exposure through SM’s extensive retail network, and describes the buy-in as a "win-win situation."

KGI said SMC may also tap Banco De Oro Universal Bank of SM as a credit supplies to San Miguel distributors and raw materials suppliers. Furthermore, SMC could get a strong alliance with SM Investments’ businesses to go ahead with the agro-industrial estate San Miguel has been setting up, the securities firm said. With the recent entry of two new shareholders, Japan’s Kirin Brewery Co. Ltd. and SM Investments, KGI expects more action from SMC in terms of globalization strategy.

SMC’s strong earnings momentum which saw consolidated revenues at P76 billion and operating income of P6.8 billion in the first seven months make the Company an attractive investment, Asiatec Equities said. It also noted that SMC’s dividend pay-out track record has been excellent since Cojuangco became chairman and CEO. SMC has increased its cash dividend, the securities firm said, to around P1.25 this year or equivalent to an estimated annual dividend pay-out of around 2.5 percent, a rate better than other conglomerates’ pay-out ratio.

The securities firm added that the SMC chairman has managed to reorganize SMC’s business into a broader and more diversified portfolio and set a track record that attracted Kirin to make a substantial investment in the Company.

SMC’s robust growth this year mirrors the positive impact of its recent acquisition, Asiasec said. "The business portfolio of SMC is now expanded and more balanced," it noted, as it foresees significant contributions coming in from Coca-Cola Bottlers Philippines Inc., Cosmos Bottling and Pure Foods.