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Hong Kong's top dealmaker, Li Ka-shing, is on a winning move with a sale of Hutchison's AS Watson unit, analysts say. Photo: Sam Tsang

AS Watson retail spin-off seen as perfect timing

Hutchison Whampoa's reported spin-off of its retail arm could be perfectly timed as valuation of Asian consumer staples companies stands at a record high, say market watchers.

Cheung Kong

Hutchison Whampoa's reported spin-off of its retail arm could be perfectly timed as valuation of Asian consumer staples companies stands at a record high, say market watchers.

Hutchison Whampoa, controlled by Li Ka-shing, has picked Bank of America, Goldman Sachs and HSBC to work on an initial public offering of its retail arm, AS Watson, Sky News reported on its website yesterday, citing sources.

Now is a great time to sell as investors are willing to pay a high premium
STEPHEN SHEUNG, SHK PRIVATE

The company planned to sell shares in Hong Kong and might pursue a secondary listing in London, the website said.

"Watsons' free cash flow is a very good feature, which would be favoured by long-term investors such as pension funds and sovereign funds," Stephen Sheung, an investment strategist at SHK Private, told the . "Now is a great time to sell as investors are willing to pay a high premium for consumption-related stocks in Asia."

An MSCI index that tracks consumer staples companies in Asia ex-Japan is trading at just under 24 times forward earnings. That compares with just 12.4 times for the broader regional index.

"The earnings growth of local property and retail businesses has peaked and prospects for the two sectors are not promising. Selling the low-growth businesses, whether it is Watsons or ParknShop, should give Hutchison more liquidity to buy into some higher-growth sectors next year," Sheung said.

Watson, which runs stores, including groceries and pharmacies, in 33 markets would be valued at more than US$20 billion in an IPO, industry sources said.

Shares in Hutchison rose as much as 3.5 per cent yesterday to the highest in almost 13 years on optimism a Watson IPO would free up money to invest in more lucrative industries. The stock closed up 3.3 per cent at HK$103.60. It has climbed 28 per cent this year, beating the Hang Seng Index's 2.5 per cent gain.

Hutchison in October scrapped plans to sell its ParknShop supermarket chain - part of the Watson division - after failing to get suitable bids. It would review options for Watson, including a public offering, Hutchison said at the time.

This article appeared in the South China Morning Post print edition as: AS Watson retail spin-off seen as perfect timing
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