The financial sun is rising on Tesco’s Far Eastern businesses, analysts believe following a tour of stores in the region.
Tesco bosses took brokers to South Korea, China and Malaysia this week. Despite a fall-off in sales in China after the Olympics ended and an impact from the credit crunch in South Korea, analysts expect strong growth in the long term.
Korea, where Tesco spent£1 billion last year to acquire 36 Homever stores for conversion to its Homeplus fascia, is likely to be particularly important.
Citi analyst James Anstead said: “Tesco appears to have a clear plan to reinforce its price leadership in the country, widening its gap with the benchmark from 1.7 per cent to 3 to 5 per cent.” By 2010, Homeplus should be the market leader.
Panmure Gordon analyst Philip Dorgan said: “It is clear that our [Korean] growth estimates are too low. Not only is the hypermarket roll-out going to be faster than we thought – with margins in the long run having upside – but the rapid expansion of Express should create another£1 billion of sales by 2012.”
Tesco reported that like-for-likes in Korea were flat in the first half and down 2 per cent in the 10 weeks to November 1. In China the figures were up 14 per cent and 8 per cent respectively, and in Malaysia up 1 per cent and 2 per cent.
Dorgan was relaxed about the performance. He said: “Global retail companies will be affected by global recessions. However, they can also benefit so long as they listen to their customers and tailor their prices and ranges accordingly.
“Also, they can benefit from being able to acquire assets more cheaply. Sure, Tesco’s earnings growth in the short run may slow but the long-term growth story does not change.”
He said that Tesco is market leader in five of the 12 countries in which it is present and that the retailer’s international operations now contribute the same profit as the entire group made in 1997.
Korea, where Tesco spent£1 billion last year to acquire 36 Homever stores for conversion to its Homeplus fascia, is likely to be particularly important.
Citi analyst James Anstead said: “Tesco appears to have a clear plan to reinforce its price leadership in the country, widening its gap with the benchmark from 1.7 per cent to 3 to 5 per cent.” By 2010, Homeplus should be the market leader.
Panmure Gordon analyst Philip Dorgan said: “It is clear that our [Korean] growth estimates are too low. Not only is the hypermarket roll-out going to be faster than we thought – with margins in the long run having upside – but the rapid expansion of Express should create another£1 billion of sales by 2012.”
Tesco reported that like-for-likes in Korea were flat in the first half and down 2 per cent in the 10 weeks to November 1. In China the figures were up 14 per cent and 8 per cent respectively, and in Malaysia up 1 per cent and 2 per cent.
Dorgan was relaxed about the performance. He said: “Global retail companies will be affected by global recessions. However, they can also benefit so long as they listen to their customers and tailor their prices and ranges accordingly.
“Also, they can benefit from being able to acquire assets more cheaply. Sure, Tesco’s earnings growth in the short run may slow but the long-term growth story does not change.”
He said that Tesco is market leader in five of the 12 countries in which it is present and that the retailer’s international operations now contribute the same profit as the entire group made in 1997.
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