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SM to focus on core businesses

Vol. XXII, No. 187 [ BusinessWorld Online ]

Monday, April 27, 2009 | MANILA, PHILIPPINES


THE COUNTRY’S top mall developer and retailer will spend the next two years maximizing its core businesses while waiting for the global economic storm to subside before jumping into full-scale expansion.

Teresita T. Sy, vice-chairman of SM Investments Corp., told BusinessWorld editors and reporters last week that there was still double-digit growth in some retail segments, but warned of a softening in the third quarter.

Targets, however, remain unchanged since consumers continue to flock to "value products" offered in 33 malls nationwide.

"What we will do basically for these two years is to maximize whatever value we have within. Sometimes when we are expanding, there [are] some values which we overlook so we are going back into looking at the value within the group and maximize it," Ms. Sy said.

Hotel and other property development projects already in the pipeline will proceed, but given SM’s conservative character there are "contingency" measures to pull back if things get worse.

Its four core businesses — retail merchandising, shopping malls, banking, and property — produced a 15.6% gain in last year’s profit of P14 billion.

Executive Vice-President and Chief Finance Officer Jose T. Sio said SM was expecting the same growth rate this year with consumption and remittances from Filipinos working overseas likely to hold up.

First-quarter sales figures were good, Ms. Sy pointed out.

"For the retail sector, we expect to see double-digit growth in the first quarter coming from the basic items and a single-digit growth coming from the non-basic items. Surprisingly, the big-ticket items also did well," she said.

The retail business, which includes the SM Department Store and supermarkets, is expected to post 10-12% revenue growth, just half last year’s, with consumers sticking to essentials .

The retail segment, which contributed 40% to the Sy family-led holding company’s net income, grew by almost a fifth to P3.4 billion last year.

The mall empire built by Chinese immigrant Henry Sy five decades ago expects to have 36 malls nationwide by yearend, aside from three in China.

Mall unit SM Prime Holdings, Inc. plans to open three this year — SM City Naga in Camarines Sur, SM City Rosario in Cavite, and SM City Pamplona in Las Piñas. SM Prime is also opening the Sky Garden at SM City North Edsa this year and is set to expand SM City Rosales in Pangasinan.

To date, the SM retail chain has a total of 97 stores composed of 33 department stores, 37 supermarkets, 13 hypermarkets, and 14 Makro outlets. The SM retail group plans to open 16 supermarkets, four hypermarkets and two department stores this year.

SM Investments has allotted P25 billion for capital expenditures this year.

"The targets are staying for now although we are preparing [for a possible] slowdown in the third quarter. We are always cautious and our budget [remains at the normal level] although we have contingency measures if the tide turns the other way," Ms. Sy said.

She said the company’s property segment was also doing well despite expectations by most analysts of a real estate slowdown.

"Most of our customers are the middle class who are buying the units not for investment purposes. The projection for this year will be better than last year."

Property arm SM Development Corp.’s net income surged by 66% to P6.8 billion last year.

Ms. Sy said SM would continue to focus on the middle and affordable market and defer venturing into the high-end market.

Aside from five ongoing projects, SM Development will launch four more developments this year — Princeton Residences on Aurora Boulevard in Quezon City, Jupiter Residences in Makati, Tree Residences in Cainta, Rizal, and phase two of the Mezza Residences in Sta. Mesa, Manila

Banco de Oro Unibank, Inc., meanwhile, is expected to increase its loan portfolio by 15% this year, higher than the expected industry average of 5-10%.

The family also controls another bank, China Banking Corp., although the Sys are not actively managing it.

Ms. Sy said the SM group remained on the lookout for opportunities although the focus would be on the hotel and leisure segment as well the education sector, which, if ever, could become SM’s fifth core business.

The 84-year-old Sy patriarch wants education to be part of the family’s legacy, sending hundreds of scholars to college each year. The family owns two schools, Asia-Pacific College in Makati City and National University which it bought last year. The Sys also own a fifth of listed Far Eastern University.

Ms. Sy said the family was venturing heavily into the tourism sector although the strategy is to lay the groundwork first.

Some P2.5 billion has been allotted for four to five hotels expected to break ground this year. Later on, there will be a new convention center in Cebu and a stadium and other leisure facilities at the SM Mall of Asia complex in Pasay.

"We are preparing these things and are just waiting for the right time. The hotels are something that we have considered since we are working toward tourism, which is expected to [kick again] in two years," Ms. Sy said.

She said the company was already doing the groundwork for the hotels, a convention and other entertainment-related industry.

Ms. Sy said the company would continue to develop the Hamilo Coast, a masterplanned set of interconnected coastal resort communities in Nasugbu Batangas, where there will be a hotel and residences for families looking for "second homes." — from a report by K. J. R. Liu

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