FREE Stock in Focus: SM Investments Corp. (SM) – 13 Dec 2024 by Regina Capital Development Corp.

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Summary of Broker’s Recommendation

We maintain our BUY recommendation, with our financial model yielding a 12-month forward fair value of P1,170/share, slightly higher than our previous Target Price.

Analysis and Opinion

SM Investments Corporation (SM)’s bottomline had a surge in 9 months (9M) 2024, growing by 9.2% year-on-year (y/y) to P84.1 billion, while its 3rd quarter (3Q) 2024 Net Income also saw significant growth by 7.4% y/y to P29 billion. Key factors behind this growth were strong performances across its segments, with banking accounting for the largest portion of earnings at 50%, property at 27%, retail at 15% and portfolio investments at 8%.

SM continues to see a steady increase in sales, which pushed its consolidated revenues up, amounting to P462.5 billion in 9M 2024 (up 5% y/y) and P161.02 billion in 3Q 2024 (up 4.8% y/y). Merchandise maintains its position at the heart of SM’s sales growth, with real estate following behind as residential demand grew.

The firm’s banking segment also saw a solid increase, with sustained contributions from its core intermediation and fee-based service businesses. Portfolio investments also experienced sustained contributions, with increased travel demand amid a growing tourism industry and higher mineral prices, such as copper and gold.

For the upcoming year, the group is expected to spend around P115 billion for capex next year, with SMPH aiming to set aside around P110 billion, which would support the firm’s mall expansion plans and further ventures into logistics and renewable energy businesses.

While a potential implementation of President-elect Trump’s proposed tariff adjustments could weigh upon construction progress in the firm’s property sector and upon imported consumer goods, this is estimated to be partially offset by continued contributions from SM’s retail, property, and banking segments, alongside continuous store expansions, improved NPL ratios and coverage, and margin normalizations in department stores.

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