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SCMP Reporter

FIRST Pacific Co did not disappoint analysts yesterday, coming well ahead of expectations with 1995 profits doubling to $2 billion.

  The conglomerate has managed a significant feat by making money in all activities in all of its markets around the globe.

  Traditionally, Hong Kong-based conglomerates stepping offshore have tripped up on poor timing and lack of international experience, triggering exceptional and general losses.

  After a rocky start to the 1990s, First Pacific has managed to turn in annualised compound profit growth, net of exceptionals, of about 30 per cent in the first years since 1992.

   In the 12 months to December 31, profit after exceptionals was $1.18 billion. The shareholder level earnings per share, fully diluted and net of exceptionals, has seen about 20 per cent annualised compound growth since 1992 to 55 cents.

  Profits and earnings per share dipped in the early 1990s after showing big provisions on unprofitable regional expansion.

  Sales, in terms of revenues, have grown every year since incorporation in Bermuda in 1988.

   Following the merger of property firm First Pacific Holdings and distribution conglomerate First Pacific International, First Pacific Co has seen turnover rise to more than 20 per cent annualised compound growth.

  In the past four years, First Pacific has focused successfully on four main activities in two key regions.

  Management at the company switched from debt-led aggressive regional expansion on all fronts to cashflow oriented development of different activities in different geographic areas.

  First Pacific is in marketing along with distribution, telecommunications, property and banking.

   Europe - especially the Netherlands - and the Asia-Pacific are prime areas.

  Driving cash flows are marketing and distribution, making up 88 per cent of turnover. This staple provides stability to the group revenues and reassures investors of the ability of the company to generate funds to service any built up debt.

  In the short term, profits are due to be driven by operations in the Asia Pacific.

   Telecom bills are set to rise sharply, especially at Smartone. Property-linked profits are due to kick in regularly over the medium to long term with the strategic exposure to the Fort Bonifacio development in The Philippines.

  In assets, growth in the short term will come from marketing and distribution as the acquisition of Borsumij Wehry by Hagemeyer in the Netherlands is absorbed. Over the longer term, Fort Bonifacio is due to contribute significantly to asset growth.

  Having achieved a balance of cash flow, geographic diversity and key profit growth operations the management now needs to make sure it avoids banana skins.

  Corporate ooops factors exist in the telecommunications side of the business. Already a hit has been taken in the accounts for problems with CT2 operations.

   Although the subscriber base at Pacific Link has hit 200,000, analysts are worried what effect the outbreak of a price war will have to the profitability of the sector. At Port Bonifacio there also is potential for problems as domestic politics threaten get in the way of the developer's plans.

  Given the rating of the conglomerate, at a big premium to the market, it appears investors reckon the management can keep out of any potholes lying ahead.

  Helping the group's rating is the emphasis it places on transparency in relations with investors and in the published annual accounts.

  Yesterday's trading saw the group's shares fall more than 3 per cent to $11.40, ahead of the issue of the group results for the 12 months to December 31, which came after the market closed.

  This slide came after a strong surge in the shares. Since the Lunar New Year break, First Pacific shares have risen 14 per cent to a record $11.80 close last Friday. Over the same period, the Hang Seng Index fell 1.27 per cent, according to Bloomberg.

  Analysts are expecting further profit growth net of exceptionals of between 20 per cent and 25 per cent. On 1995 fully diluted and net of exceptionals figures the company is on 19.6 times earnings. The share value on 1996 prospective earnings is about 18 times, well ahead of the market rating of about 13 times prospective earnings.



Amid all the good news, watch for banana skins