RSA to invest in Spam

San Miguel-Purefoods is investing in Spam, as in the iconic canned luncheon meat product and not the digital garbage. This is according to San Miguel’s Ramon S. Ang who told a group of senior business writers last Monday that he is now bullish on the San Miguel-Purefoods business. And when RSA says he is bullish about a business, expect him to pour massive investments in it.

This appears to be a change of attitude for RSA who diversified San Miguel’s business to cover utilities and public infrastructure precisely because he saw the beer and food businesses as basically flat and unexciting. While beer and food were seen to generate positive cash flow, RSA didn’t see SMC’s traditional business lines bringing about the kind of growth he wanted for the conglomerate.

It used to be that our regular conversations with RSA revolved around Petron and SMC’s power and public infra projects. Last Monday, we talked about expanding the capacity of Purefoods’s flour milling operations and the expansion of its meat processing facilities to enable it to produce Spam for the ASEAN market within two years.

Spam may be an American product, but it is also as iconically Filipino as tocino. Indeed, Spam has started to produce tocino as a variant in its line a few years ago. I understand Spam’s really big in Hawaii among Fil-Ams. In the Philippines, there are kiosks at the malls that specialize in Spam sandwiches among other quick food offerings.

There was a time when the Chinese-produced Maling threatened to knock Spam out of its perch in the Philippine market. But distrust in the quality of Chinese manufactured food products arrested the challenge.

The escalating price of imported Spam in this era of a depreciating peso may moderate its future market growth. Manufacturing it here will save on logistical costs not just for the Philippine market, but also for ASEAN as well. San Miguel’s decision to invest in a new manufacturing line is also an expression of confidence on the Philippine economy during this period of worldwide economic turbulence.

There is so much room for San Miguel-Purefoods to grow, RSA declared. But, he lamented, it is under appreciated by the stock market. He pointed out that Purefoods only has a price to equity ratio of 8.72 compared to Century Tuna’s 22.87.

Bloomberg reports Purefoods earnings per share of P26.80 to Century Tuna’s P0.74; Purefoods YTD return of 81.09 percent to Century’s 55.40 percent; Purefoods dividend gross yield of 2.57 percent to Century’s 0.39 percent.

There is so much room to grow for this under appreciated issue, RSA said. That, plus strong consumer demand from rising middle class incomes (OFWs and BPOs) justifies his bullishness on Purefoods, RSA added. Hormel, the company that owns the Spam brand, is San Miguel’s partner in Purefoods.

San Miguel is also expanding its beer brewing and bottling facilities to address increasing market demands specially in the south. Expansion of its glass manufacturing facility in Quezon province is also planned to respond to export demand.

Three major infra projects are up for completion by 2018. The NAIA Expressway project will be completed for public use before the end of this month. It is just actually waiting for government regulators to complete necessary paperwork before formal inauguration.

The NLEX-SLEX connector road project, according to RSA, will be completed by 2018. But he intends to open segments of the project as these are completed to help relieve traffic congestion. But the focus is on completing the project from Balintawak to Buendia even before some of the exits along the way are done.

RSA also said the SMC connector road will not be just for car owners. He plans to use one of its lanes to run a BRT system from Balintawak to Susana Heights, with one stop in Buendia. This mass transport idea will carry 200,000 commuters daily at a competitive fare that requires no government subsidy.

The other infra project, the TPLEx or the Tarlac Pangasinan La Union Expressway will also be completed up to its end point in Rosario, La Union by 2018. It is, even now, drastically cutting down travel time from Manila to Baguio.

The Caticlan airport expansion has just been completed to allow Airbus 320s to bring domestic and international passengers directly to Boracay. RSA is now thinking of a cable car system to shuttle tourists from Caticlan to the island destination. The bridge he thought of earlier is too expensive, he said. A new passenger terminal will soon be built to accommodate the increased passenger load.

As for the new airport to replace or augment NAIA, RSA said his unsolicited proposal is the only one that requires no government subsidy or sovereign guarantee. The two Sangley proposals from the Solar Group and a group composed of Ricky Razon, Buboy Virata and the Remulla family require subsidies and guarantees in the billions of pesos. RSA wants a “beauty contest” among the proposals that takes government financial risk in mind.

On his personal business, RSA said he is expanding his Eagle Cement manufacturing capacity in line with the massive requirements of government’s infra program. He has also seen the big potential in steel. Long term, he wants to put up an integrated steel manufacturing facility that will process local iron ore into billets and finished products.

As I wondered aloud how he can accomplish all these big projects, RSA smiled and said it is free to dream and there is so much to dream about to address the needs of over 100 million Filipinos. The next important part is to put private capital to help make those dreams come true, which is exactly what San Miguel is doing, he said.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.