November 05, 2014

SMPH posts 12% 9M14 earnings hike

In a press statement, SM Prime Holdings Inc (SMPH) yesterday said its 9M14 net income grew by 12% YoY to P13.5b, sustaining the 12% growth in 1H14. While revenues grew by 9% YoY in 9M14 and 14% in 3Q14, there was a notable deceleration in rental income growth to just 9% in 3Q14 vs. the 12% average growth in 1H14 notwithstanding the additional space from the expansion of SM Megamall and other new malls opened during the year.

Real estate revenues grew 12% in 3Q14 (after declining by 4% in 1H14) on progress completion from the Grass, Shell and Breeze Residences projects. However, gross profit margins for the segment dipped to 36.5% in 3Q14 from the 43.3% average in 1H14 on rising costs. Fortunately, this was compensated by higher gross margins in the non-residential business units (to 43% in 3Q14 from 41.9% in 1H14). This kept the overall operating margin relatively steady at 42.1%.

Our take: The 9M14 earnings came slightly lower than expected as these accounted for just 72.4% of full-year forecasts. However, we note that there is room for SMPH to catch up in 4Q14. For one, mall revenues usually peak in 4Q in light of the holidays. Also, SM Megamall should get a revenue boost with rising occupancy in the new wing which bodes well especially with the approaching holiday shopping season. Lastly, 4Q14 earnings will come off a lower base given that 4Q13 revenues were muted in the aftermath of super-typhoon Yolanda. – WealthSec