HONG KONG: Shares of mainland-based supermarket chain operator Lianhua Supermarket Holdings jumped 13 percent to a seven-month high yesterday after it announced an acquisition plan to buy the Hualian Supermarket chain to further expand its presence in Shanghai.

Lianhua shares rose as high as HK$13.20 yesterday morning. It closed at HK$12.98, up 11.1 percent.

Lianhua said it would buy a 99.4 percent stake in Hualian for 491.8 million yuan ($71.97 million), a deal that would also help improve its retail chain franchise business in the provinces of Zhejiang and Jiangsu.

The company said it would buy Hualian from their parent Bailian Group, an associate of Shanghai Industrial United (Group) Commercial Network Development and a substantial shareholder of the company.

"The acquisition helps to expand Lianhua Supermarket's economies of scale and builds on our competitive strengths. As a result, we will become the dominant supermarket player in the Yangtze River Delta region and our influence in the provinces of Zhejiang and Jiangsu will be deepened," Lianhua chairman Ma Xinsheng said.

DBS upgraded Lianhua Supermarket to "buy" from "hold", and raised its target price to HK$15.19 from HK$10.93. It said the move can raise the company's bargaining power and lower average procurement costs.

DBS estimated the deal would at least boost Lianhua's revenue and profit by 13 percent to 28 billion yuan and by 9 percent to 477 million for 2010 respectively.

Lianhua Supermarket is the leading supermarket chain on the mainland. Established in Shanghai in 1991, it ranked No.1 among the retail chain operators for fast-moving consumer products in the country in 2008.

As of December 31, 2008, Lianhua Supermarket operated 3,872 stores in 20 provinces and municipalities. The number will jump to more than 5,200 after the acquisition in which Lianhua will pay in cash.

Hualian Supermarket started its business in 1992. It had a network of 1,183 franchise outlets and 213 direct outlets, concentrated in Shanghai, Jiangsu Province and other cities in the Yangtze River Delta region as of December 2008.

The state-owned retail conglomerate Bailian controls the city's four largest retailers, including Lianhua and Hualian.

China Daily - Reuters

(HK Edition 06/30/2009 page4)