FREE Stock in Focus: San Miguel Corp. (SMC) – 22 Feb 2024 by AP Securities

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Summary of Broker’s Recommendation

SMC is already expected to spend P44.6-Billion in capex this year, not including the initial P40.2-Billion investment it has to put into NAIA now that it has won the bid. It is unclear how the company intends to fund this, as SMC is already leveraged at 7.5x net debt-to-EBITDA as of Q3 2024. This translates to around P1.2-Trillion in net debt,
a staggering number considering that the company is expected to generate only P216.7-Billion in EBITDA next year. As such, we remain a SELL on SMC based on consensus Target Price of P100.90 per share.

Analysis and Opinion

SMC wins NAIA bid

The Department of Transportation (DOTr) has officially announced SMC SAP & Co. Consortium, composed of SMC, RMM Asian Logistics, RLW Aviation Development, and Incheon International Airport Corp. as the winning bidder for the NAIA rehabilitation project. SMC’s winning bid include a pledge to invest a total of P122.3-Billion for the rehabilitation of NAIA over a 15-year period, while giving an 82.16% revenue share to the government. On top of this, SMC has to pay an upfront fee of P30-Billion and annuity of P2.0-Billion per year for the next 15 years.

Questions of profitability

The Manila International Airport Authority (MIAA) earlier said that NAIA is expected to generate P5.29-Billion in revenues from international passenger charges and around P8.9-Billion from other fees. At the same time, the airport is expected to need P7.4-Billion in maintenance and operating expenses next year. After deducting the 82.16% government share, it is likely that SMC stands to lose around P4.8-Billion from NAIA in its first year.

Another piece in the RSA’s jigsaw puzzle

The biggest draw of NAIA for SMC would be its contribution to SMC’s portfolio of business. The company is currently constructing an alternative airport in Bulacan, dubbed the New Manila International Airport (NMIA), and also operates the Boracay’s Caticlan airport. SMC also operates the NAIA Expressway, as well as the Metro Manila Skyway. NAIA would fit nicely into this infra and transportation portfolio that RSA is trying to build for SMC, hence the aggressive bid for NAIA.

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