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SM bullish on retail, property businesses

Friday, August 14, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]


SM INVESTMENTS Corp., the listed holding firm for the Sy family’s mall, banking, and property businesses, remains on track toward meeting its full-year profit target, expecting stronger sales from retail operations and residential developments as well as a seasonally good second half.

"We are confident that we will sustain our 14% first-half growth performance. As you can see, the local economy is already stabilizing. The second half is also usually stronger than the first half because of the holiday seasons and the upcoming [election season]," SM Investments Chief Finance Officer Jose T. Sio said.

Mr. Sio said growth would continue to come from the group’s retail and the residential units which have shown "encouraging performance" since the year began.

Earlier this year, SM Investments said profits were expected to grow by 12% to 14% this year. Growth, however, would be slower than the 15.6% pace in 2008, when the holding firm reported P14-billion net income.

But Mr. Sio said judging from how the SM group has been performing, it was likely that the profit target would be breached.

From April to June, the net income of the Sy-led conglomerate went up by 16% to P4.46 billion, while revenues climbed by 15% to P39 billion. This brought first-half profits to P7.4 billion, or a 14% increase from the previous year.

"SM’s results for the first six months of the year stayed on track as all our major subsidiaries performed well amid a generally slower business environment due to the global financial crisis. Our long-term view of the economy keeps us focused on our strategic expansion program in all our lines of business," SM Investments President Harley Sy said.

Growth continued to come from retail and property, while the mall business was a major source of steady earnings. Banks have also shown "significant recovery," benefiting from the integration of past acquisitions and increased market penetration.

SM Investments said retail merchandising earned P2.4 billion in profits, up by 42% from January to June.

Of total retail sales, the food group — where the SM supermarkets and hypermarkets belong — contributed 57% to the sector’s profits. Robert Kwee, executive vice-president of SM Hypermarkets, said the "basket size" of customers continued to grow even if consumer spending during the first quarter slowed down.

A total of 11 stores were opened by the SM retail group this year, bringing total stores to 106 stores. For the rest of the year, the group is scheduled to inaugurate one more department store, one supermarket, six SaveMore branches, and four Hypermarkets.

Meanwhile, sister SM Prime Holdings, Inc.’s net income during the first six months was flat at P3.4 billion. The country’s dominant shopping mall developer and operator attributed the growth to three malls — SM City Marikina, SM City Rosales and SM City Baliwag — opened last year and SM City Naga which opened earlier this year.

The new malls and the expansion of existing malls added 477,000 square meters (sq. m.) to the company’s total gross floor area. The average occupancy rate was 96%.

For the rest of the year, SM Prime will open SM City Rosario in Cavite and SM Supercenter Pamplona in Las Piñas. By yearend, SM Prime expects to have 36 malls in the country, with an estimated gross floor area of 4.9 million sq. m.

Banco de Oro Unibank, Inc. and China Banking Corp. likewise posted healthy first-half results. The net income of Banco de Oro climbed by almost a third to P14.3 billion due to a higher level of earning assets and an improvement in its funding mix.

China Bank earned a net income of P2.02 billion from January to June, or a 38.8% increase compared to the previous year. SM Investments said the bank’s profit growth was due to improvements in core banking activities, higher loan volume, and trading gains.

Profits from real estate operations meanwhile jumped by 80% to P1.2 billion in the first six months. SM Investments said the contributions largely came from residential arm SM Development Corp. followed by the leasing activities of the commercial properties group, and the resort projects of Costa del Hamilo.

SM’s tourism vehicle is developing the Pico de Loro project in Nasugbu, Batangas.

SM Development reported a net income of P1 billion in the first half, up from only P10.3 million in the same period last year. The holding company said the dramatic increase in the property developer’s profits was because of the improvement in investments in equities along with higher residential sales.

SM Development has seven ongoing projects, namely Chateau Elysee in Parañaque, Berkeley Residences on Katipunan Road, Grass Residences beside SM City North EDSA, Sea Residences in Pasay, Field Residences in Sucat, Parañaque, Lindenwood Residences in Muntinlupa, and Mezza Residences across SM City Sta. Mesa.

Other projects to be launched by SM Development in the latter part of the year are Princeton Residences and Sun Residences in Quezon City, Mars Residences in Makati, Jazz Residences in Mandaluyong, Tree Residences in Cainta, Rizal, and Wind Residences in Tagaytay.

Shares in SM Investments climbed by 1.57% or P5 apiece to P322.50 yesterday. — Kristine Jane R. Liu

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