2007/2008 Guide to Asia's Blue Chip Companies

Consumer

Shop until you drop

Shop until you drop is not a simple expression in Asia; it’s a mantra, a lifestyle. The number-one pastime in the region is indisputably shopping. While consumer companies don’t comprise a huge portion of the FA100, that’s because bigger sectors – like natural resources and banking – dominate. But that doesn’t mean shopping doesn’t dominate the mindset. Nor does it mean that the consumer sector hasn’t performed well. In fact, with the growing wealth in Asia and the year-on-year appearance of more disposable washing through the region like never before, consumer-based firms will likely be in the strongest sectors in the coming years and will undoubtedly see their place on the FA100 assured for many years to come.

It should come as no surprise, then, that Lotte Shopping joined the index this year; it is representative of the spirit of the region. Lotte joins the list as a result of its initial public offering in 2006, which was groundbreaking for Korea on a number of fronts. First and foremost, it indicated the willingness and ability of Korea Inc to return to the stock market for its capital-raising needs. Lotte Shopping raised W3.43 billion, or $3.54 billion, after strong demand from foreign investors allowed the Korean retailer to price what, at the time, was Asia’s largest non-privatisation IPO. The deal priced two thirds up the price range at W400,000 per share. It was also the largest-ever equity fund-rising from Korea after LG Philips LCD’s $2.2 billion secondary offering in July 2005.

But while Lotte Shopping’s IPO was good for the nation, the investors at the time were also focusing on Lotte Shopping as a play on South Korea’s economic growth prospects amid a recovery in consumer spending. As long as the regional economies are ticking along, folks will shop in Asia.

That’s because at the very source of this sector is the confidence of consumers, which – despite subprime woes in the US and Europe – appears to be in very good shape in practically all the major Asian economies.

Hong Kong, which experienced a blow to consumer confidence during Sars, has bounced back and remains Asia’s most visible consumer story. Strong growth in Hong Kong’s retail sales are expected to continue in 2008 given continuing economic expansion and rising tourist numbers that should boost spending. Retail sales rose 16.6% in October 2007 from a year before to HK$20.7 billion Hong Kong. This was faster than the revised 15.8% growth in September. October – which was the most updated data at press time — was the fifth straight month during which retail sales expanded at a double-digit level, according to a government spokesman. The official added that sales of electronic goods and cameras led the gainers, rising 32.5%, while sales of motor vehicles and parts gained 29%; jewellery, watches and clocks jumped 27.4%. Officials also say shoppers from the mainland are big contributors to the sector.

A visit to Hong Kong – or the mainland – will put you face to face with two images: Women criss-crossing the cities with shopping bags in hand and men chain smoking.

That brings up the other key consumer group that makes the index: smoking. KT&G, originally Korea Tobacco and Ginseng, is the leading tobacco company in South Korea, making leading Korean cigarette brands such as The One, Indigo and Arirang. The company dominates the Korean tobacco market, enjoying a market share of 69.4% as of the end of the second quarter of 2007. But it’s also building up a presence in the Middle East and Central Asia and rapidly emerging in other markets such as Russia and China.

Similarly, ITC is the market leader in cigarettes in India with its portfolio of brands including Insignia, India Kings and Classic, to name just a few. With a market share of 75%, ITC currently leads the pack in the branded cigarette industry. Other major players include Godfrey Philips India, GTC Industries, VST Industries, Dalmia Consumer Care and Kothari Products. According to industry analysts, the Indian branded cigarette sector has registered a growth of 8% in the last two years. The company also boasts strong performance in its non-cigarette business, which includes hospitality, garments and biscuits.

Ranking by revenue
Country	Company	(million $)
SK	Lotte Shopping	9,970.60
IN	ITC	3,263.30
SK	KT&G	2,491.22

Ranking by revenue growth
Country	Company
IN	ITC	24.80%
SK	Lotte Shopping	5.20%
SK	KT&G	2.40%

Ranking by net profit
Country	Company	(million $)
SK	Lotte Shopping	81474.00%
SK	KT&G	71532.00%
IN	ITC	698.42

Ranking by ROE
Country	Company
IN	ITC	27.74%
SK	KT&G	20.01%
SK	Lotte Shopping	13.73%

Ranking by total points
Country	Company
SK	Lotte Shopping	37
IN	ITC	3700.00%
SK	KT&G	3400.00%