March 03, 2014

SM posts 11% hike in 2013 earnings

In a press statement, SM Investments Corp (SM) yesterday said its net income rose 11% to P27.4b. This came on a 13% growth in revenues to P253.5b.The salient points are as follows:

The growth in SM’s overall earnings was primarily driven by the strong performance of BDO which posted a 56% growth in net income to P22.6b. The latter was, in turn, fueled by strong trading gains, and a 19% growth in gross customer loans which was funded by a 44% hike in total deposits. Earnings from its banking business accounted for 43% of SM’s earnings for the year.

The reorganized property business (under SM Prime Holdings Inc) posted a flat earnings growth at P16.7b due to a one-off restructuring cost of P1.27b. Otherwise, recurring earnings was up 8% YoY to P17.54b. 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. The property business now accounts for 36% of SM’s consolidated net income.

The retail business continued to be weighed by stiff competition given aggressive expansion by its competitors. Sales grew 14% to P180.9b driven primarily by expansion and acquisitions. However, net income from this segment declined 15% YoY to P5.6b. We believe the latter was weighed by lower margins amid tight competition. Net margin fell to 3% from 4.1% in 2012.

Our take: We expect this year to remain challenging for SM’s earnings given the high base of banking earnings set last year due to hefty trading gains, the tight competition in the retail business which may continue to weigh on margins, as well as the challenges to its residential development operations. – WealthSec