July 27, 2015

SMPH defers horizontal housing plans

SM Prime Holdings Inc (SMPH) is reportedly deferring its foray into low-cost horizontal housing to next year as it will need more time to consolidate properties it is acquiring for the new business venture. BusinessWorld quoted the company’s residential unit head as saying the company needs to consolidate a minimum of 30 hectares and process the conversion of these properties for residential use.

Meanwhile, the company has reportedly launched about 8,000 units in 1H15 and will ramp this up to its desired annual inventory of between 12,000 and 14,000 units by the end of the year. In 1Q15, SMPH sold 3,721 residential units (+34% YoY) worth P9.5b.

Our take: We view positively SMPH’s move to venture into horizontal housing as this can potentially yield higher margins. We estimate SMPH’s gross margins on its vertical housing business at 45%. On the average, the gross profit margin of vertical housing developers can range from 45%-55%.

More importantly, by venturing into horizontal housing, SMPH canhave a better control on project launches, minimize the risk of sales cancellation, hasten the development cycle and enable it to manage inventories. Meanwhile, the project launches guidance is largely in line with our forecast of 12,700 units. – WealthSec