Suntory: One To Watch?

Tokyo - based food and drink giant Suntory Holdings Ltd Food & Beverage arm has reported impressive H1 result s for the six months ending in June. Paired with the US$4bn the soft drinks maker collected following the completion of its recent initial public offering, the company's enviable cash pile and broad portfolio arguably make it one of the most exciting players in the global soft drinks business today.

Japan's PepsiCo bottler has announced an encouraging set of results for the first fiscal half of the year with net profit nearly doubling year-on-year (y-o-y) to JPY 11.99 bn ($123 mn) . Net income rose 96%, with a wea ker yen stimulating sales at home for the drinks giant, with beverage sales increasing by JPY30bn. Clearly a set of impressive results, recent figures demonstrate Suntory's enviable position following its IPO as it looks to international markets for growth.

Prompting the largest IPO in Japan this year, a sluggish domestic market has driven Japanese companies to look internationally for growth. This is not a new development for the firm, who previously looked to developed markets for merger and acquisition targets: in France the firm purchased Orangina in 2009 , and in the same year purchased Frucor in New Zealand . Consequently, armed with roughly US$4 bn following its successful offering, paired with an impressive H1 , Suntory's pote ntial M& A targets are set to excite, with emerging markets in our view an attractive platform for future growth. Suntory's domestic sales were up 1.2% y-o-y in Q1 2013, compared with a 17.6% y-o-y hike recorded across its international beverage division , clearly indicating the continued pressure on domestic growth.

Recent Lift
Suntory Food & Beverage Share Price (yen)

Suntory: One To Watch?

Tokyo - based food and drink giant Suntory Holdings Ltd Food & Beverage arm has reported impressive H1 result s for the six months ending in June. Paired with the US$4bn the soft drinks maker collected following the completion of its recent initial public offering, the company's enviable cash pile and broad portfolio arguably make it one of the most exciting players in the global soft drinks business today.

Japan's PepsiCo bottler has announced an encouraging set of results for the first fiscal half of the year with net profit nearly doubling year-on-year (y-o-y) to JPY 11.99 bn ($123 mn) . Net income rose 96%, with a wea ker yen stimulating sales at home for the drinks giant, with beverage sales increasing by JPY30bn. Clearly a set of impressive results, recent figures demonstrate Suntory's enviable position following its IPO as it looks to international markets for growth.

Recent Lift
Suntory Food & Beverage Share Price (yen)

Prompting the largest IPO in Japan this year, a sluggish domestic market has driven Japanese companies to look internationally for growth. This is not a new development for the firm, who previously looked to developed markets for merger and acquisition targets: in France the firm purchased Orangina in 2009 , and in the same year purchased Frucor in New Zealand . Consequently, armed with roughly US$4 bn following its successful offering, paired with an impressive H1 , Suntory's pote ntial M& A targets are set to excite, with emerging markets in our view an attractive platform for future growth. Suntory's domestic sales were up 1.2% y-o-y in Q1 2013, compared with a 17.6% y-o-y hike recorded across its international beverage division , clearly indicating the continued pressure on domestic growth.

Philippines Potential
Philippines Soft Drinks Sales, US$mn

Further growth in South East Asia, in our view, will provide clear benefits for Suntory as it looks to reach sales of JPY 2tn by 2020. Rumours have continued to link Suntory with a purchase of Philippines - based Del Monte Pacific following its boosted spending power, a move that if realised, could spell positive gains for the maker of Orangina and Boss coffee. With Philippines' large population ( South East Asia's largest after Indonesia ) , Del Monte's impressive juice profile across the country will appeal to Suntory as it continues to push not only geographic diversification , but broaden its impressive soft-drink portfolio.

Strong South East Asia Pull
Vietnam & Thailand Soft Drinks Sales, US$mn

Consequently, South East Asia is likely to feature heavily in the company's designs to disperse the impressive capital accrued in recent months However, the company has also indicated interest in Africa, the Middle East and Latin America as it looks for dynamic opportunit ies . This focus is one that BMI expects to only propel Suntory to greater heights. With its impressive portfolio of soft drinks (ranging from core carbonates, to fruit juices to RTD tea and coffee options) , Suntory is well positioned to capitalise on emerging market thirst as it looks to avoid further saturation in its home markets.

Fruit Juice Stands Out
Saudi Arabia Fruit/Vegetable Juice & Carbonated Drink Sales, US$mn

Cash rich and intent on growth, Japan's second largest drinks company is likely to continue to play an increasingly visible role in the soft drinks businesses. Competition will remain from key rivals Asahi , who in its H1 results posted a sales increase in soft drinks of 9.6% (despite the same sluggish domestic market) and Kirin Holdings Co., who has spent approximately US$4.5bn on foreign non-alcoholic acquisitions , as they too drive to secure international growth opportunities.

Consequently, we retain a positive outlook for Suntory's soft drinks business moving forward as its parent Suntory Holdings remains unlisted. With enviable capital driving both the ambition and resources to seek emerging market growth on the back of strong H1 results, Suntory's M&A movements will attract great interest in coming quarters.

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