Overseas Expansions To Provide Stronger Opportunities For Margin Growth

Bolstered by the underlying strong demand conditions in the Philippine beer market, domestic brewer San Miguel Brewery (SMB) reported an increase of 6.3% in its net sales for the year ending December 2011. The company also witnessed growth of 10% and 17.4% in its operating profits and net profits respectively in FY2011. While SMB continues to enjoy robust revenue and volume growth in Hong Kong, it has a relatively weaker sales showing in its Chinese market in terms of volumes. Given the rapid emergence of competition in the Chinese beer market, we have reservations about SMB's ability to generate strong profitability gains and consequently turn its Chinese operations around. Longer term, we believe SMB would probably do better to channel its capital resources into less competitive and relatively immature beer markets such as Thailand, Indonesia and Vietnam so as to enjoy stronger margin prospects.

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