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

Global Times - - BIZCOMMENT - Page Ed­i­tor: [email protected]­al­times.com.cn

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. bi­zopin­[email protected]­al­times.com.cn

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