* CRE says to bid for Hutchison's supermarket chain at
* Says not rule out possibility to team up with Tesco in
* CRE can beneft from ParknShop's brand name, sourcing
By Donny Kwok and Denny Thomas
HONG KONG, Aug 21 State-backed China Resources
Enterprise Ltd (CRE) said on Wednesday it had bid for
Hong Kong's biggest supermarket chain, a move analysts said
would help the beer-to-retail conglomerate expand market share
through a quality brand.
China's second largest supermarket chain, which signed a
joint venture with British retailer Tesco Plc earlier
this month, is trying to accelerate growth at home and fend off
competition from market leader Sun Art Retail Group Ltd
For CRE, the appeal of Hong Kong tycoon Li Ka-shing's
ParknShop chain lies in its brand-name, which is considered more
trustworthy than purely mainland brands by Chinese consumers
obsessed by food safety, analysts said.
ParknShop, estimated to be worth $3-4 billion, has had at
least seven offers from Australian and Japanese retailers keen
to expand in Hong Kong as well as mainland China, a market that
has proved difficult for foreign companies.
"The ParknShop brand can raise (mainland Chinese) consumers'
confidence in the merchandise they buy," said Linus Yip, chief
strategist at First Shanghai Securities.
"The potential deal can make CRE the biggest player in the
Hong Kong market, while at the same time CRE can, through
ParknShop's sourcing network, introduce high-quality products
into the mainland, in particular consumers are highly concern
about food quality and safety," he added.
China's hypermarket industry is likely to grow to 863.8
billion yuan ($141 billion) by 2015, from an estimated 659.6
billion yuan in 2013, according to consultancy Euromonitor.
A slowing economy, however, has crimped the profits of
supermarket operators, giving CRE an added incentive to further
expand in Hong Kong, where ParknShop competes only with
Singapore's Dairy Farm International Holdings Ltd.
"ParknShop is a time-honoured and respected brand in Hong
Kong," CRE Chief Financial Officer Frank Lai told reporters
after the company posted a 54.5 percent drop in first-half net
profits, in line with expectations.
"Hong Kong is a market which is not small with population of
over 7 million and consumption is high," he added. "ParknShop
have a solid management and have demonstrated strong earnings
capability even in an open and highly competitive market."
CRE owns Hong Kong's third-biggest super market brand
Vanguard and Lai did not rule out the possibility of teaming up
with Tesco for the ParknShop acquisition.
"We put in a bid in accordance with our evaluation, a price
which we think is fair and reasonable," he added.
China Resources has about $1.1 billion in cash flow from
operations, the highest in its Chinese peer group, and a
relatively low debt/equity ratio of 0.33, according to Reuters
Reuters had earlier named Japan's AEON Ltd,
Australia's Woolworths and equity fund KKR & Co
as bidders for ParknShop, which generated HK$1.4 billion ($180.1
million) in earnings before interest, tax, depreciation and
amortization last year.