FREE Stock in Focus: SM Prime Holdings (SMPH) – 5 Jan 2023 by RCBC Securities

Summary of Broker’s Recommendation

We currently have a Buy recommendation on SMPH with a Target Price of Php41.40/share.

We set our target price at Php41.40 based on an estimated net asset value (NAV) per share of Php43.83, and applying a 6% discount-to-NAV, which is based on the average of SMPH’s current and 2017-2019 discount-to-NAV.

Our target price offers an upside of 12.7% and a composite return of 13.4%, inclusive of our estimated 12-month forward dividend yield of 0.7%.

Analysis and Opinion

Core net income up 41% to Php22.0 billion

SM Prime Holdings, Inc. (SMPH) reported 9 months (9M) 2022 core net income of Php22.0 billion, 41% higher year-on-year (yoy). PH mall revenues jumped 114% to Php33.9 billion driven by the resumption of charging full-rental rates starting July 2022, while revenues from China malls slid 7% to RMB550.0 million (~Php4.4 billion), weighed down by strict COVID-19 restrictions in the country.

Residential revenues declined 12% to Php28.3 billion, dragged by higher sales cancellations as a result of the lapse of the Bayanihan Act. As a result of higher mall rental charges and notwithstanding softer residential sales, EBITDA climbed 47% to Php43.5 billion, reflecting a 7.3ppt EBITDA margin expansion to 59.1%.

Mall revenues approaching pre-COVID levels

3Q mall revenues rose 124% yoy and 6% qoq to Php14.6 billion (equivalent to 95% of 3Q2019 levels), underpinned by normalized rental rates, alongside improved tenant sales amid pent-up consumer demand. Foot traffic was at ~85% of pre-COVID levels during weekdays and ~105% on weekends, while average occupancy rates improved to 92% in 3Q vs. 91% in 2Q.

Residential sales rebound on lower cancellations

3Q residential reservation sales rose 16% to Php24.5 billion, led by the take-up of mid-rise buildings (MRBs). Meanwhile, 3Q residential sales improved 33% yoy and 63% qoq to Php10.1 billion on the back of higher construction progress, alongside lower cancellations.

2023 core net income to exceed pre-pandemic levels

We are revising our 2022/2023 core net income forecast downwards by 9%/2% to Php31.0 billion/Php39.6 billion, representing 42%/28% yoy growth, to account for softer-than-expected residential sales.

Meanwhile, we project 2024 core net income to grow 12% to Php44.5 billion. Despite our forecast downgrades, we reaffirm our view that SMPH’s core net income will exceed pre-pandemic levels beginning in 2023, underpinned by recovering tenant sales, normalization of mall rental rates, and growing mall footprint.

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