February 25, 2014

SM Prime posts flat earnings growth in 2013

SM Prime Holdings Inc (SMPH, Not rated) yesterday said its 2013 net earnings was flat at P16.7b. However, excluding some P1.28b in restructuring costs related to its consolidation of the property assets of the SM group, recurring net profit grew 8.2% to P18b. This came on a 4.5% revenue growth driven by a 12.6% rise in rental and other income but weighed by the 8% decline in real estate sales.

Notwithstanding the drag from the residential business, overall operating margins improved to 40% from 39% on increased contribution from rental assets with the opening of Two-Ecom BPO office building. The company maintained the 7% Yoy growth in same-mall sales.

Our Take: The consolidation of the residential development business into SM Prime has weighed on the company’s margins and earnings growth. Real estate sales now account for 35% of total revenues thus the impact to both margins and earnings are notable.

Prior to the consolidation, SM Prime was generating operating margins of 53%-55%. Until the residential business starts to generate growth for the group, it will continue to weigh on overall sentiment for SMPH notwithstanding the strong brand equity and cash flows of its mall operation. – WealthSec