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Far Eastern shares close limit-up on China plans

The share price of Far Eastern Department Store Ltd (遠東百貨) closed limit-up yesterday after the retailer unveiled plans to increase holdings in a Hong Kong subsidiary, paving the way for further business expansion in China.

The stock also obtained support from a regulatory approval from the Fair Trade Commission yesterday which allows it to merge with Pacific Sogo Department Store Co (太平洋崇光百貨), the nation's second-largest department store chain.

Shares of Far Eastern, the nation's third-largest department store operator, yesterday gained NT$2.6, or 6.93 percent, to close at NT$40.1, a record high, Taiwan Stock Exchange data show.

The stock has risen by 10.02 percent since Thursday after Far Eastern announced plans to spend US$79.5 million on 7.6 million shares, or 40 percent, in Pacific China Holdings Ltd (太平洋中國控股).

In a filing sent to the stock exchange on Thursday, Far Eastern said the share purchase would enable it to own a stake of around 67.5 percent in Pacific China Holdings, which operates a chain of nine department stores in China.

Analysts said that with Sogo's strong brand image and firm customer loyalty, the share purchase would increase upside momentum for Far Eastern through next year.

"Far Eastern could acknowledge its earnings from the first quarter of next year" from its increased stake in Pacific China Holdings, Vincent Chen, an analyst at SinoPac Securities Co (永豐金證券), said in an investment note.

"We project sustainable recurring earnings growth for Far Eastern with recurring EPS [earnings per share] of NT$0.89 in 2007 and NT$1.15 in 2008, implying 53.5 percent and 28.5 percent year-on-year growth," he wrote.

SinoPac reiterated its "outperform" rating on Far Eastern, with a target price of NT$46.6 on the back of expectations of business turnaround at its Geant hypermarket operation in Taiwan and the anticipated growth potential of Pacific stores in China.

Merrill Lynch & Co was also optimistic about Far Eastern's business outlook. It yesterday raised the stock's target price to NT$48 from NT$36, with earnings per share of NT$1.47 for this year and NT$1.78 for next year, up 21 percent and 36 percent year-on-year, respectively.

In Taiwan, the regulatory approval will allow Far Eastern and Pacific Sogo to enjoy a collective market share of 23.08 percent, widening the gap between them and their domestic rivals even further.

The commission said the combination was not expected to hurt domestic market competition.

In 2002, Far Eastern Department spent around NT$1 billion to acquire a 43.56 percent stake in Pacific Sogo.
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