Published May 28, 2009

Metro - a store and more?

By ARTHUR SIM

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AFTER courting the spotlight for about a year now, Metro Holdings appears to be getting the attention it has been seeking. At its financial results briefing held on Monday, the conference room at the head office in Ngee Ann City was brimming with institutional investors and analysts keen to know more about its growth strategy.

It was a sharp contrast to the briefing it held a year earlier - the first in about 10 years - where Metro staff outnumbered the guests. It was at the earlier briefing that Metro, helmed by Jopie Ong, decided to emphasise to analysts and the public alike that the company, better known as a retailer here, had a new growth story to tell, and quite a compelling one too.

Over the last 20 years, Metro has increasingly gone into property development in China. Fortuitous joint ventures and property deals have since turned the retailer into a bona fide property developer. To date, almost 90 per cent of its profit before tax comes from its property division. For the quarter ended March 31, profit before tax from property was $26.6 million compared with just $1.97 million from retail.

The reason for the renewed interest in Metro is obvious then. With China's economy expected to be more resilient than most, and S-chips here being what they are, Metro's exposure in China makes it an interesting conduit to that nation's growth prospects.

So it was probably a little disappointing for some of those attending the Monday briefing that Metro could not or would not articulate in clearer terms how it intends to parley its advantageous 'foothold' in China.

There was a brief frisson that went round the room when Lawrence Chiang, group general manager, mentioned real estate investment trusts (Reits) and how this would benefit developers in China. Metro has sizeable stakes in five completed and two uncompleted commercial properties in Shanghai, Beijing and Guangzhou, so a Reit would make some sense, especially with the interest in impending China Reits gaining momentum.

But the idea was quickly muted with director Gerald Ong adding that Reits were only for companies with an asset-light strategy. Metro, with a cash hoard of over $190 million and a debt/equity ratio of 0.01 times, is not in need of cash.

What will Metro do with its cash then?

This was not clear either. It would evaluate the feasibility of new projects and, depending on the circumstances, might even consider returning some to investors.

Even questions about the scalability of Metro's retail operations could not excite much comment from the board. The resounding direction of the company it seemed then is that it will remain 'conservative', a point that Mr Ong had to reiterate a few times on Monday.

To be fair, these are unsettling times and bigger companies than Metro are content to sit back and ride out the storm. Indeed, some may even consider this the prudent thing to do. Still, one has to wonder if these might just be the conditions for which a smaller, nimbler company like Metro could step out into the forefront leaving behemoths behind. Some of those who turned up on Monday must certainly have thought so.