SMC shares get ‘buy’ rating

Impressed by San Miguel Corp.’s (SMC) effective management of its acquisition of Coca-Cola Bottlers Philippines Inc. (CCBPI) and Pure Foods Corp., Jardine Fleming Exchange Capital Resources Inc. has upgraded its rating on SMC shares to a "buy" recommendation.

Jardine Fleming, one of the leading securities firms in the Asia-Pacific region, said that the two acquisitions shore up SMC’s presence in its core businesses, and are positive factors for earnings in the medium term. "On balance, we believe the company’s strategy is correct, management performance has improved, and valuations are attractive," the securities firm said.

Also viewed favorably were SMC’s earlier acquisition of Sugarland Beverage Corp. and Metro Bottled Water Corp. which Jardine said "gave SMC management (and the market) confidence that they could successfully integrate larger companies." With a changing corporate culture, the securities firm said SMC’s "senior professional managers are now moved more often with the result that knowledge and experience are spread throughout the company."

A refocus of CCBPI’s business to take advantage of SMC’s distribution network will result in attractive return on equity for the soft drinks firm in 2002, Jardine said. Higher volumes and wider operating margins are also expected as a result to management focus on cost, distribution and marketing. Improved capacity utilization is another factor that augurs for better operating margins, especially with San Miguel’s planned takeover of Cosmos Bottling Corp., Jardine said.

The Pure Foods acquisition, on the other hand, has given SMC a stable of brands that will complement existing brands. This increased weighting of branded goods in San Miguel’s food group will reduce the volatility of margins in the more basic agricultural businesses, Jardine added.

It also cited the cost savings and restructuring in SMC’s international beer division as an example of effective management. Noted in particular was the rehabilitation of Blue Star beer in Northern China that boosted San Miguel’s capacity utilization and helped widen its margins in that market.