San Miguel brewery unit gains 6 percent on debut

MANILA (Reuters) - San Miguel Brewery (SMB.PS), the crown jewel of Southeast Asia's biggest food and drinks conglomerate, rose over 6 percent on its debut on Monday after its parent shrank its IPO price range and halved the number of shares on offer to sell the deal in a turbulent market.

San Miguel Corp (SMC.PS)(SMCB.PS) President Ramon Ang said the company would focus on its home Philippine market for now after listing 5 percent of its flagship domestic brewery.

But some analysts said the San Miguel group still needed to clarify its business strategy to investors.

San Miguel stunned investors last May when it said that it wanted to diversify into heavy industry in its home market. Its B shares (SMCB.PS), open to all investors, have lost around 35 percent of their value since the announcement.

"It's good that they are sticking to their domestic business," said an analyst from a foreign brokerage house who asked for anonymity. "But the question is what investment are they really considering? Do they have a strategy and what is it?"

Shares of San Miguel Brewery closed at 8.50 pesos (20 U.S. cents) against an offer price of 8 pesos per share in an IPO that valued the company at around $2.9 billion. Shares of the group fell 1 percent, lagging a higher broader market .PSI.

Turbulent financial markets and investor complaints that the offer was too expensive had forced San Miguel to twice shrink the price range and halve the numbers of shares on offer, reducing what was shaping up to be the Philippines' biggest-ever IPO to $147 million.

San Miguel Corp is planning to list its packaging business and conduct a follow-on offer after consolidating its food assets under Pure Foods Corp (PF.PS) (PFB.PS) in the first quarter of 2009, Ang said.

"We hope to sell at least 20 percent of our packaging group when we go public," Ang said in a rare media conference, adding San Miguel was willing to retain just 51 percent of the food group.

Ang said San Miguel, which is 20 percent owned by Japan's Kirin (2503.T), wants to list all of its operating companies to make them more efficient and transparent.

San Miguel's first quarter-performance was strong, he said, adding there was double-digit earnings growth in the quarter over a year ago, when it posted net income of 4.33 billion pesos.

San Miguel remained open to new non-core business ventures domestically, shunning overseas purchases for now, but was waiting for stock prices to stabilize before aggressively going for an acquisition, Ang said.

NEW VENTURES

"We are interested to look at anything that will give San Miguel a good return and that can give the company growth," he said, adding that any new investment should offer at least 15 percent return on equity for the group.

"We will be concentrating our energies now in the Philippines because we believe there is opportunity now in this crisis."

"I think it has not yet bottomed. And we believe there is a long way to go and the valuation of most of these companies will still go down tremendously. I think it is not yet the time to go and grab something," Ang said.

Ang also said San Miguel was not in advanced talks on any acquisition, adding there were no interesting power assets up for sale after it failed to acquire a 25-year license to operate the national power grid at an auction in December.

Shares of San Miguel Brewery opened at 8.30 pesos per share

and at one point fell below the IPO price to 7.90 pesos.

The IPO price was at the bottom of an indicated 8-11 pesos price range. Sources said the overseas offer, about 70 percent of the total, was 1-½ times covered while the domestic issue was also oversubscribed. "I think those who subscribed and continue to buy are institutionals, a sophisticated sort of investors who better understand the fundamentals of the company," said Jose Vistan, analyst at AB Capital Securities.

Other analysts said San Miguel, which holds 95 percent of the domestic beer market, offered a high dividend yield of 6-7 percent, compared to about 3-4 percent for local food and beverage firms.

The IPO price valued San Miguel Brewery, the Philippines top beer producer, at 13.7 times forward earnings, still at a premium to the local market, which is trading around 10 times, but broadly in line with regional peers.

San Miguel Brewery, the only big listing scheduled in the Philippines for this year, contributes around 40 percent of group operating profit and posted a 37 percent increase in net profit in the first quarter to 2.5 billion pesos on net sales up 13 percent.

($ = 42.6 pesos)

(Editing by Raju Gopalakrishnan and Kim Coghill)