Philippines: San Miguel's 2006 profit seen up 5%, upbeat on 2007

San Miguel Corp., Southeast Asia's largest food and beverage group, is likely to post a 5 percent rise in 2006 profit and give an upbeat outlook for the coming year due to improving domestic demand and overseas sales, Reuters reported April 10.

Like larger rival Nestle, which reported a better-than-expected 14 percent increase in net profit last year, San Miguel's overseas acquisitions, particularly in Australia, have partly compensated for higher commodity costs.

The Philippines' second-largest listed group is expected to report net profit of 9.51 billion pesos ($198 million) for 2006 compared to 9.031 billion in 2005, according to the median of five analysts polled by Reuters.

San Miguel is forecast to report a 12 percent drop in fourth quarter net profit to 3.34 billion pesos after the group booked a one billion peso derivative gain in the final quarter of 2005.

Leo Venezuela, analyst with ATR-Kim Eng Securities, said he expected double digit profit growth this year.

"They will be a beneficiary of election-related spending and I expect a modest recovery in hard liquor," said Venezuela, who has a "Buy" recommendation on the stock.

"I'm looking at 10.9 billion pesos for full year net profit this year, which translates to growth of around 14 percent."

San Miguel has squeezed costs at its domestic beer unit, still the company's top profit driver, to make up for flat sales last year but analysts expect revenues to pick up in 2007 as political hopefuls dole out free alcohol at rallies ahead of congressional elections on May 14.

Liquor arm Ginebra San Miguel Inc. , which has seen a 22 percent drop in operating income in the first three quarters of 2006, is also expected to benefit from a likely easing in the cost of molasses, tracking a fall in global sugar prices.

San Miguel has expanded aggressively in the Asia Pacific region to reduce its reliance on the Philippines and analysts expect it to focus on further integrating these acquisitions, including Australian dairy firm National Foods bought in 2005.

San Miguel said in February that its Australian businesses, including juice maker Berri Ltd., recorded 14 percent revenue growth in the fourth quarter of 2006. National Foods' full-year sales climbed eight percent.

The group offloaded its loss-making domestic soft drinks arm to joint venture partner Coca Cola in February for $590 million and analysts expect San Miguel to use the proceeds to pay off some of its 125 billion peso debt pile.

San Miguel's shares have fallen nearly 8 percent over the past 12 months, underperforming a 50 percent climb in the general index as investors have opted for cheaper consumer stocks in faster growing markets such as China and India.

San Miguel's shares are valued at around 20 times 2007 earnings compared to 18 times for Nestle. San Miguel's valuation reflects its dominance of the local market for beer, dairy, processed foods, poultry and grains and feeds.

The government is the single largest shareholder in San Miguel with voting rights over a 24 percent interest and nearly 12 percent held by state pension funds.

Uncertainty over government plans to see some of its stake in San Miguel has also weighed on the stock.

Japan's biggest beer maker, Kirin Brewery Co. has a 20 percent stake while Philippine conglomerate SM Investments Inc. holds nearly 11 percent.

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