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Tuesday, May 6, 2014

SMPH: Real estate business puts drag 1Q14 income

1Q14 net income jumps 11.4%. Net income for the first quarter jumped 11.4% to Php4.58 Bil. Revenues rose just 2.7% but EBIT increased 9% to Php6.67 Bil as overall expenses grew at a slower pace. SMPH’s 1Q14 income is slightly behind our estimates due to a weaker than expected real estate revenues but it is in line with consensus estimates.

Rental and other revenues offset real estate weakness. Consolidated revenues grew just 2.7% to Php15.35 Bil. The slow growth was a result of the 17% decline in real estate revenues from Php6.01 Bil to Php5.02 Bil. Excluding real estate revenues, other revenues grew 15.5% to Php10.33 Bil, led by rental revenues which grew 12% to Php8.56 Bil. Same store rental growth of malls grew 7% y/y while the balance of the 12% growth came from new malls opened in 2013.

Real estate revenues to remain low for the year. We expect revenues to remain low throughout the year given the low take up sales last year. Recall that in 2013, take-up sales of SMPH dropped 17% y/y to Php26.3 Bil. We believe this was a deliberate move by SMPH as the group underwent reorganization and does not reflect slowing demand in the sector. We expect changes starting this year as SMPH plans to double its number of projects by 2018.

Lowering income forecast but FV is unchanged. We are lowering our net income forecast for FY14 and FY15 to factor in lower real estate revenues for FY14 and FY15. We lower our FY14 and FY15 real estate revenue forecast by 23% to Php19.74 Bil and Php20.72 Bil respectively. This resulted in a 6.2% and 6.5% decline in our net income forecast to Php19.14 Bil and Php21.64 Bil for FY14 and FY15 respectively. Our FV estimate is unchanged at Php19.41 based on a 10% discount to our NAV estimate of Php21.67. Despite the weak short term outlook on real estate revenues, our outlook remain positive, reinforced by the company’s five-year plan of doubling the number of residential projects by 2018. We maintain a BUY rating on SMPH.

- Col Financial

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