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Billionaire Sy Plans $1.5 Billion Mall Expansion: Southeast Asia

Philippine billionaire Henry Sy’s shopping mall developer is planning to spend 63 billion pesos ($1.5 billion) in the next three years to add as many as 18 shopping malls at home and in China as consumer spending rise.

SM Prime Holdings Inc. (SMPH), the biggest Philippine retail developer, plans to build four to five malls a year in the Southeast Asian nation. It’s also targeting a shopping center in China every year, said Hans Sy, the Manila-based company’s president and the billionaire’s son.

The expansion will help sustain profit growth, the company said, forecasting a 16 percent increase in earnings this year after a 15 percent gain in 2011. SM Prime shares rose 1.2 percent to 14.06 pesos at the close in Manila, the highest since March 19. The gain pushed the stock 32 percent higher this year, beating the Philippine Stock Exchange Index (PCOMP)’s 21 percent gain, the most among Asia’s 12 biggest stock markets.

“I am quite positive that we can accelerate our earnings growth,” Hans Sy, 56, said in an interview on July 31 in Manila. “There are still plenty of opportunities in the Philippines and in China. We believe consumer spending in both countries are sustainable and will continue to grow.”

Photographer: Enrique Soriano/Bloomberg

A cyclist rides past SM Development Corp.'s Mall of Asia in Pasay City, the Philippines. Close

A cyclist rides past SM Development Corp.'s Mall of Asia in Pasay City, the Philippines.

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Photographer: Enrique Soriano/Bloomberg

A cyclist rides past SM Development Corp.'s Mall of Asia in Pasay City, the Philippines.

New malls in China will also extend its revenue base beyond the 108 million population in the Philippines to the world’s fastest-growing major economy. Sales in its home market made up more than 90 percent of revenue last year, according to data compiled by Bloomberg.

SM Prime may face the risk of declining funds sent home by Filipinos working abroad, while a “sharp” economic slowdown in China may make it longer for the company’s expansion to bear fruit, according to Astro del Castillo, managing director at First Grade Finance Inc.

Expansion Risks

“SM Prime has its own set of risks,” del Castillo said. “The stock is deemed a safe haven because SM Prime’s management is conservative and the Philippines has a resilient consumer market.”

Remittances from more than 9 million Filipinos overseas account for about a 10th of the $225 billion Philippine economy, with citizens abroad sending home a record $20 billion in 2011. The value of those inflows, which helped fund property purchases, may be eroded as the Philippine peso strengthened 4.8 percent this year, the most among Asia’s most-actively traded currencies, according to data compiled by Bloomberg.

The Philippines ranked 130th of 142 countries in the World Economic Forum’s latest survey on the cost to business of terrorism; and 112th in terms of crime and violence -- the worst in Southeast Asia.

Slowing Growth

The expansion in China also comes as the Chinese economy shows sign of easing. The nation’s manufacturing teetered on the edge of contraction in July, signaling a rebound in economic growth has yet to take hold. That hasn’t stopped other developers from seeking retail property ventures in the country.

CapitaLand Ltd. (CAPL), Southeast Asia’s biggest property company, said in a July 29 statement its retail unit is building its first shopping center in Qingdao, adding to Singapore-based developer’s 58 malls in China, of which 15 are under development.

“We want to still acquire more shopping mall projects,” Chief Executive Officer Liew Mun Leong said in an interview in Singapore yesterday. “That will be a large part of our appetite.”

In China, SM Prime’s president said he will focus on less- affluent or second-tier cities such as Zibo. It plans to open a mall in Chongqing by year-end, its fifth in China. Last year, it added a mall each in the Philippines and China.

Provincial Malls

The new Philippine malls will be located in areas outside Metro Manila, which includes the capital and 16 neighboring towns and cities, said Hans Sy, who’s the fourth of the billionaire’s six children. The company plans to open five malls in the country this year, adding to its network of 41 shopping centers.

“SM Prime’s future growth in the Philippines will come from its expansion in provincial areas,” said Alex Pomento, strategist at the Manila unit of Macquarie Group Ltd. “Its venture in China is slowly building up and looks very promising.”

SM Prime said it will fund the expansion with a mix of cash from operations and debt. The company opened its first Philippine shopping mall in 1985, helping Henry Sy expand a retail venture that is now composed of the nation’s largest supermarket and department store operator.

The elder Sy, 87, is worth $11 billion, making him the wealthiest man in the Philippines and the 73rd-richest in the world, according to the Bloomberg Billionaires Index.

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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