August 06, 2015

SM ups 1H15 core net income by 13% YoY

SM Investments Inc (SM) today announced in a press statement that its 1H15 core net income grew 13% YoY to P13.5b. This indicates that 2Q15 core net income grew 15% YoY vs the 11% YoY growth registered in 1Q15. While the property business recurring net income came within expectations, revenues trailed our forecasts given the weakness in cinema ticket sales. Nonetheless, property earnings growth accelerated in 2Q15 (see Daily Wealth Take, 4 Aug 2015).

Meanwhile, its banking operating results (see Daily Wealth Take, 27 Jul 2015) also trailed our expectations. What sprang a surprise was the retail business. The latter posted a 13% hike in net income to P3.1b in 1H15 on a 6% growth in sales to P96.7b. While sales growth decelerated to 5.6% in 2Q15 from 6.5% in 1Q15, net earnings from the retail operations grew 18.2% in 2Q15 from 6.5% in 1Q15. Net margin also improved to 3.5% in 2Q15 from 2.9% in 1Q15, bringing the 1H15 average net margin to 3.2%.

Our take: Notwithstanding the earnings growth acceleration in 2Q15, SM’s overall recurring income still trailed expectations as it accounted for just 43% of the full-year consensus forecast. It remains if the acceleration in earnings growth can be sustained especially towards the holidays in 4Q. We also have yet to determine what drove the net margin improvements in the retail operations given the limited details discussed in the company’s press statement. SM will be conducting an investors’ briefing this morning. – WealthSec