BREAKINGVIEWS-Li puts too much lipstick on global beauty IPO

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add graphics.

By Una Galani

HONG KONG, Jan 16 (Reuters Breakingviews) - Beauty may be in the eye of the beholder but some things look unsightly to everyone. The Li family's conglomerate, CK Hutchison 0001.HK, has started gauging investor interest for a planned London and Hong Kong listing for its vast global health and beauty retailer, A.S. Watson, and is seeking a $30 billion valuation, Reuters reported on Thursday citing sources. That's punchy.

Assessing Watson's worth is tricky for multiple reasons. Shifts in consumer behaviour and intense e-commerce competition have dragged down valuations for offline consumer-facing businesses over the past decade and there aren't many large listed direct peers. Meanwhile, the group's switch to post-IFRS 16 accounting methods delivers wildly higher numbers for its retail business, which includes the UK Superdrug brand, than management's preferred pre-IFRS figures.

The targeted headline valuation is equal to nearly 15 times Watson's pre-IFRS EBITDA, based on annualising results for the first half of 2025. Yet in 2014 when Singapore sovereign investor Temasek spent $5.7 billion to acquire 25% of Watson, it paid 13 times. A few years later, KKR KKR.N mulled taking Walgreens Boots Alliance private at a $90 billion valuation - four times the amount it was valued at in buyout last year. German cosmetics firm Douglas DOUn.DE, a much smaller business, is growing slower and trades on 4 times.

Sizing up Watson is additionally complicated thanks to its vast business in the world's second-largest economy. Of the group's 17,000 stores spread across 31 markets in Asia and Europe, more than one-fifth of outlets are in China, where it is treading water.

Once a star operation, the China unit's profit has disappeared. The venture is shutting some stores and upgrading others, but pressures on the Chinese economy mean any recovery will take many years. That weighs on Watson's overall performance: retail revenue rose 8% in the first half of 2025, impressive but below the group's double-digit growth in Europe.

That suggests a need to temper expectations. The Li's are struggling to deal their way out of a wider value trap at CK Hutchison, which trades at less than half its book value. A separate $23 billion sale of its ports business to a consortium led by BlackRock BLK.N and Italian Gianluigi Aponte's family-run shipping firm Mediterranean Shipping Company is caught in the middle of Washington and Beijing's geopolitical power plays.

But a Watson listing could unlock value in less obvious ways. A London tranche of shares would help the company attract U.S. pension funds that are no longer willing to purchase Chinese equities. It would also provide a more attractive currency to strike share-based M&A deals in the future. And it has the added benefit of keeping the Singaporeans happy: Temasek has been awkwardly boxed in with the Li's for too long. That's enough to make pursuing a listing, even one at a more reasonable lower valuation, worthwhile.

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CONTEXT NEWS

Hong Kong conglomerate CK Hutchison is looking to raise some $2 billion at a valuation of around $30 billion for retail unit A.S. Watson in a dual Hong Kong and London listing, Reuters reported on January 15 citing two people with knowledge of the matter.

The ports-to-telecoms group hopes to complete the initial public offering by the middle of the year, one of the two people said, adding that the timetable is fluid. Goldman Sachs and UBS are working on the planned IPO, the two sources said. Singapore's Temasek, which holds a 25% stake in the health and beauty retailer, is seeking to exit its investment in the IPO, said the sources.

Watson operates over 8,000 offline plus online stores under the Watson brand in Asia. Its other brands include Superdrug and The Perfume Shop in the UK, Kruidvat in the Netherlands and Belgium, and PARKnSHOP in Hong Kong and Macau. Overall, the group has over 17,000 stores across 31 markets in Asia and Europe.

(Editing by Antony Currie; Production by Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on GALANI/ una.galani@thomsonreuters.com))