CHINA: Far Eastern Group to Buy Cement Suppliers in China Expansion

Taiwan’s Far Eastern Group may buy as many as three cement companies in China as it expands into the retailing, materials and chemicals industries in the world’s second-largest economy, Chairman Douglas Hsu said.

Far Eastern Department Stores Co., the group’s retail unit, plans to add two to three stores per year in China, and textiles armFar Eastern New Century Corp. (1402) will double capacity to make materials used in plastic bottles and fabrics, said Hsu, 68, who is chairman of both companies.

Far Eastern, which says it’s Taiwan’s third-largest industrial group, has $500 million of investments planned for China as it seeks to tap the mainland’s growing domestic demand. Cooperation with China Mobile Ltd. (CHL) and an economic accord between Taiwan and China will help the company gain access to consumers in the world’s most populous country, he said.

“The Chinese government right now is pushing for internal consumption, so exports may be playing second,” Hsu said in an interview yesterday. “In retailing, if you take China today at $5,000 to $10,000 per capita, they have a long way to go.”

The addition of one department store this year will take Far Eastern’s China retail presence to 14 outlets, Hsu said. Its floor space in China will expand 40 percent this year, he said.

Acquisitions in China’s cement industry, where the company is ranked 13th, will help Far Eastern achieve its goal of being among the top 10 suppliers within five years, Hsu said without identifying the targets.

Acquisition Targets

Taipei-based unit Asia Cement Corp. (1102) and Hong Kong-listed affiliate Asia Cement China Holdings Corp. have identified “quite a few” possible targets, with as many as three being likely acquisitions, he said.

Asia Cement climbed 3.3 percent to NT$31 at the 1:30 p.m. close of trade in Taipei, the biggest jump in more than a year. Taiwan’s seven-member Taiex Cement Index gained 3.6 percent, while the broader benchmark Taiex rose 1.4 percent.

“It’s very important for them to buy cement makers in order to grab the growth opportunity,” said Kevin Lin, who rates Asia Cement “neutral” at Fubon Financial Holding Co. in Taipei. “In the next three to five years, retail and banking will provide Far Eastern Group larger growth opportunities.”

Far Eastern Department Stores will also increase its Taiwan floor space 84 percent, Hsu said. New locations will include entertainment and lifestyle outlets besides retail stores.

Pure Big Stores

“We are evolving. Pure big stores are now being revised to include larger areas, for the simple reason that I think the single pure-store type of thing needs to be reconsidered,” Hsu said. “Because people, with their wealth, want entertainment and more besides just a store.”

The group, which operates Pacific SOGO and Far Eastern- branded department stores as well as Geant hypermarkets, plans to become Taiwan’s largest department-store operator by turnover in 2012, overtaking privately held Shin Kong Mitsukoshi, Hsu said.

Separately, Far Eastern International Bank (2845) has held talks with Japanese, South Korean and North American investors seeking to buy a stake in the Taipei-based bank as a stepping stone into China, President Eli Hong said in a separate interview yesterday, without identifying the companies.

Far Eastern, which is not willing to sell the whole bank, may allow an acquirer to take as much as a 15 percent stake, which would include a board seat, Hong said.

China Mobile

“We do not need to go in for a nationwide arrangement, all we need is probably to hit one of the so-called big cities and be able to operate in a 10 or 20 million sector,” Hsu said of its Chinaplans. Hsu is vice chairman of the bank.

Far EasTone Telecommunications Co., Taiwan’s third-largest phone operator, of which Hsu is chairman, hopes to proceed with a NT$17.8 billion ($600 million) investment by China Mobile, the world’s biggest phone carrier by market value.

The deal will give the Chinese operator a 12 percent stake, Hsu said. Taiwan regulations currently prohibit investment in local phone operators by mainland Chinese investors.

The two companies have already agreed to cooperate on mobile content, including games and Chinese-language music, Hsu said.