Coca-Cola Amatil may be planning Asian rethink, ABN Amro says
Coca-Cola Amatil may be planning Asian rethink, ABN Amro says
Dow Jones/Sydney
Coca-Cola Amatil Ltd. could announce changes to its struggling Indonesia and South Korea Coke bottling operations when it releases its first half profit result this week, investment bank ABN Amro said on Monday.
"We raise the prospect that Coca-Cola Amatil will produce more than a vanilla interim result on Wednesday," the broker said in a research note.
"In our view, there is an increasing risk of either an acquisition or a merger of the Asian operations. The former is likely to be negative, the latter less so," it said.
Speculating on possible courses of action, ABN Amro said Coca- Cola Amatil could acquire another Asian bottler, or more favorably, divest "its Indonesian and South Korean operations into a newly formed larger regional bottler, in which Coca-Cola Amatil would have a stake".
The broker noted Coca-Cola Amatil, 34.5 percent-owned by the Coca-Cola Co. (KO), has a strong funding capacity, and given some squeeze on its core businesses in Australia and New Zealand, could seek a deal in Asia to fuel earnings growth.
"Whilst we rate the chances of such an announcement at less than 50 percent, the ramifications, particularly of an acquisition, could be significant," ABN Amro said. "We would look at a potential Asian acquisition negatively."
A Coca-Cola Amatil spokesman wasn't available for comment. Its shares ended flat at A$7.85, valuing the company at A$5.8 billion.
The Asian businesses, particularly in South Korea, have been hampered by weak economic conditions and soft consumer demand. ABN Amro anticipates the company's first half sales volumes to fall 10 percent on-year in South Korea, while the business is expected to book a loss before interest and tax of A$2.8 million.
Operating income in Indonesia is expected to bounce 66 percent to A$10.5 million, with ABN Amro noting "consumer confidence remains choppy" although the operation is on the way to recovery with Jakarta's removal of the luxury goods tax in the final half of 2005.
The broker expects the company to report a net profit in the six months ended June 30, 2005, of A$140.8 million, a gain of 10.2 percent on the year-earlier result of A$127.7 million, with sales up 3.3 percent to A$1.72 billion.
In early May, the company said 2005 earnings are likely to be "weighted towards the second half" and tipped a 10 percent first half profit gain.
The company recently appointed a general manager for its Asian businesses, and ABN Amro expects the group to expand on the nature of this newly created role on Wednesday.
In another blow to its South Korean operations, Coca-Cola Amatil recently said the manager of the business had taken extended leave due to illness.