Macay mulls stake sale after backdoor listing

The founding family of the Filipino carbonated drinks manufacturer is looking to sell part of its stake just two months after completing a backdoor listing.

Macay Holdings started pre-marketing a stake sale by its founding Yao family on Monday, less than two months after completing a backdoor listing in Manila of its beverage business.

Filipino businessman Alfredo Yao and his family acquired Maybank ATR Kim Eng Financial in October 2013 and subsequently renamed it Macay Holdings. The tycoon completed the injection of its carbonated drinks business into the company in August this year.

At the moment Yao owns 89.75% of Macay through a special purpose vehicle named Mazy’s Capital, while the remainder is understood to be held by other members of the Yao family. The structure allows Macay to comply with the Philippine stock exchange's 10% minimum free-float requirement.

The stake sale will be the last step for Yao to take his beverage business public. Yao has not yet decided how big a stake he will sell and it would depend largely on investor feedback during the deal pre-marketing stage, a person familiar with the situation told FinanceAsia.

Based on Macay’s market cap of P50.1 billion ($1.06 billion), Yao would be required to sell a stake worth about $150 million (15%) in order to comply with the Securities and Exchange Commission’s 25% free-float goal.

Perhaps aware of the fact that the transaction is not small by Southeast Asian standards, joint bookrunners Credit Suisse, Deutsche Bank, and HSBC will conduct a longer-than-normal pre-marketing process lasting two weeks, the person said, adding that there is no set date for any official launch yet.

The more drawn-out arrangement may have also been made out of concerns that weak market sentiment might yet derail any equity transactions.

The Philippines has not been immune to the global equity selloff seen since June, with the benchmark PSEi Index falling 15.6% from its April peak. There is also no sign of a recovery just yet, with the index hovering close to its lowest levels this year.

Macay's share price closed at P46.90 on Tuesday, 3% above its lowest 2015 level of P45.50. That price, however, is largely indicative because the shares are highly illiquid with an average 3-month daily volume of less than 10,000 shares.

Macay Holdings is the carbonated drinks division of Zest-O Corporation, Yao’s flagship beverage manufacturing company. It has an exclusive agreement for manufacturing and selling carbonated cola under the RC Cola brand in the Philippines.

Competitive market

According to research group Nielsen, Macay had a 17% share of the Philippines's highly competitive cola market last year. Coca-Cola Philippines ranked first with a 66% market share, while Pepsi Philippines has a 21% share.

Analysts said that while Macay falls short in terms of its business scale, its profitability is much higher than that of its two main competitors.

According to a company research report by one of the bookrunners, Macay had a gross profit margin of 35.4% last year compared with 25% for Pepsi Philippines and Coca-Cola’s 26.3%. Its 45.5% return on equity is also much higher than that of its two bigger peers, which were both less than 11% last year.

At current prices Macay is valued at 27.2 times net earnings compared with Pepsi Philippines’s 16.9 times.

Another comparable is spirits and alcohol maker Emperador which trades at 18.3 times its last published earnings.

Forward-valuation estimates are absent because there are no analysts covering the stock. Company research published by one of the deal bookrunners gives a fair valuation range of around 24 – 29 times next year's earnings.

The Philippines’s carbonated drinks market grew at compound annual growth rate of 3.3% from 2009 to 2014. The relatively slow growth rate means Macay will have to grow mainly by seizing market share from competitors.

To achieve this end Macay plans to open new bottling plants on top of its nine facilities, including seven self-owned and two leased from third parties. But it might have to take on debt to fund expansion given its cash holdings were merely $18 million as of the end of June.

Its total debt-to-equity ratio remained low at 20.2%, although it has significantly risen from 2.7% at the end of last year, according to S&P Capital IQ.

It is also planning to focus on areas including Visayas and North Mindanao, where it has a lower market share compared with the rest of the country. 

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