SM Prime Holdings

9M12 earnings poised to beat forecast

9M12 income grows 15.4%. SM Prime’s 3Q12 net income grew 15.9% y/y, faster than the 15.3% growth registered in 9M12. This brought net income for the first half to Php7.4 Bil, 15.5% higher than a year ago. The said amount is also equivalent to 72.9% and 71.8% of COL and consensus full year estimates. Last year, net income for the first nine months accounted for just 70.8% of full year earnings. Earnings momentum of SMPH remains strong going into 4Q12, putting it in position to beat full-year estimates.

Revenues jump for both Philippine and China operations. For the first nine months of 2012, revenues from Philippine malls jumped 13.7% to Php20.2 Bil. This was driven by the strong growth in same store sales (SSS) and the first full period contribution of malls opened last year. SSS growth reached 8%, faster than the 7% growth recorded last year. Management also expects SSS growth to remain strong going forward (between 7% to 8%) as domestic consumer spending remains robust. SMPH also benefited from the first full period contribution of the 380,000sqm of GFA added to its Philippine mall operations last year. This is equivalent to 7.6% of its end 2010 GFA.

Revenues from SMPH’s Chinese operations were also strong, growing by 27% to Php1.9 Bil as both rental rates and occupancy levels improved. China currently accounts for around 9% of total revenues.

Five malls added in the Philippines, one to open in China. SM Prime has completed all the local malls in their pipeline this year. This year they opened five malls with a total GFA of 430,838sqm. This added 9% to SMPH’s mall GFA in the Philippines to a total of 5.5 Mil sqm. For its China expansion, SMPH will open their 150,000-sqm Chongqing mall in December. This will bring SMPH’s GFA in China to 795,172 sqm by the end of this year.

Reiterate BUY with FV estimate of Php17.00.  BUY rating on SMPH with a fair value estimate of Php17.00 is reiterated. We continue to like SMPH for being a major beneficiary of the favorable outlook for consumer spending in the country. We forecast revenues to increase at a CAGR of 13.7% from FY12 to FY14, and net income to increase at a CAGR of 12.5%. Although SMPH trades at a FY13E P/E of 21.8X, a slight premium compared to the 19.4X average FY13E P/E of other local consumer plays (JFC, PGOLD and URC), we believe the premium is warranted. Unlike other consumer plays, SMPH is resilient to fluctuations in commodity prices. Cash flow generation is also more stable, with the company consistently delivering earnings growth during the past 18 years.