Temasek considers liquidating stakes in health and beauty heavyweight A.S. Watson

Temasek is helping a drugstore giant flaunt its glow. The Singapore state investor may sell some of its 25-percent stake in health and beauty heavyweight A.S. Watson, Reuters says. The retailer’s size, moving upmarket in the Chinese mainland, and growth elsewhere in Asia could justify a premium to rivals.

The investment behemoth’s 2014 move into A.S. Watson was a bold bet on consumers. It is still the only other significant shareholder in a retail group at the heart of the CK Hutchison conglomerate, founded by Hong Kong tycoon Li Ka-shing. Now the world’s largest drugstore chain, the group has outlets in two dozen markets worldwide.

Watson’s global reach and growth prospects did not come cheap. Temasek splashed out some $5.7 billion for a quarter of the business and a say on the board, amounting to an enterprise value equivalent to a punchy 13 times that year’s EBITDA, Goldman Sachs reckons. Li’s reputation for selling at the top, as well as rising competition from ecommerce, made that even bolder. Even today, US peer Walgreens Boots Alliance trades at around nine times this year’s forecast EBITDA, Refinitiv data shows.

There are still grounds to justify a rich price tag: The retailer’s sales topped 83.9 billion Hong Kong dollar, or $10.7 billion, in the six months to June, up a healthy 14 percent year on year. And the group continues to outperform rival brick-and-mortar chains in terms of profitability, thanks in part to significant own-brand sales. EBITDA margins for health and beauty, for example, have stayed at an impressive 10 percent.

Fast-growing markets like Thailand, Philippines, and Malaysia are powering growth. Moreover, Watson’s health and beauty business in China, which accounted for a third of the group’s total EBITDA, is also experiencing a revival, with aggressive store expansion, online partnerships, and more white-label goods. The business as a whole managed to increase EBITDA by 13 percent year-on-year in the six months to June, compared to a 7 percent annual contraction in 2017.

Taking some money off the table now is shrewd for Temasek. The question is whether cashed-up private-equity outfits or others will be tempted to the checkout.

The author is Robyn Mak, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews. bizopinion@globaltimes.com.cn