San Miguel Kicks off IPO Roadshow

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San Miguel Brewery's key selling arguments include the fact that it is the dominant beer producer in the Philippines with a market share of about 95% and a product portfolio of eight beers, including the top four brands in the country. Despite this overwhelming market position, the company believes that it will be able to expand in certain parts of the country where its market share is less than 85% and also argues that its strong brands and economies of scale puts it in a good position to capture "a very large portion" of the overall industry growth. Based on internal data, the company believes that its market share grew to about 95% in 2007 from an official estimate of 93% in 2006 by research firm Canadean.

The company's upbeat projections are to some extent supported by the fact that imported brands account for only 0.1% of the Philippine beer market and thus provide less competition than in most other countries.

Canadean projects that beer sales in the Philippines grew by 5% in 2007 and San Miguel Brewery argues in its preliminary prospectus that industry volumes will continue to grow this year thanks to an expected GDP growth rate of 6.3%-7% and relatively low inflation. The company reported a 9.4% increase in net profit in 2007 to Ps8.02 billion ($194 million), which was down from a growth rate of 14.4% in 2006.

Compared with many other industries though, this can best be described as limited growth and observers say San Miguel Brewery is probably more interesting for investors because of its defensive nature. Put bluntly, beer is not among the first things that consumers cut back on in times of declining economic growth.

In addition, the listing candidate has also said that it intends to pay 100% of its recurring net income as dividend every year. Based on the IPO price range, this will give a dividend yield of 5.3% to 7.3% in 2008, which looks very attractive compared with other beer producers in the region. According to analyst forecasts compiled by Bloomberg, Thai Beverage trades at a 2008 dividend yield of around 3.8%, while Hite and Asahi return around 1%. San Miguel Corp is expected to provide a dividend yield of 3.2% this year.

The final price will be determined on April 24 when the international bookbuilding closes and the trading debut is scheduled for May 12.

Pepsi-Cola, which is the exclusive licensed bottler of PepsiCo in the Philippines, raised Ps4 billion ($111 million) from its UBS-led IPO in January after fixing the price at the bottom of the offering range at Ps3.50 per share. It fell 18.6% on the first day, touched a low of Ps2.48 in mid-March and has yet to return above the issue price. Yesterday it closed at Ps3.00.

San Miguel Corp has also been on a downward trend this year. The B-share, which is the most traded one, was down 23.5% as of yesterday, meaning it has underperformed the broader market slightly.