SM Investments May Beat 14% Growth Target on Bank, Retail

SM Investments Corp. (SM), Philippine billionaire Henry Sy’s holding company, may beat its target for profit growth of as much as 14 percent this year on higher earnings at its bank and retail ventures. The stock rose the most in three weeks.

An accelerating domestic economy and record low interest rates are fueling growth at the businesses, Chief Financial Officer Jose Sio said in an interview in Manila. The company yesterday posted a 16 percent increase in third-quarter profit to 5.23 billion pesos ($127 million).

The Philippines’ $225 billion economy grew 5.9 percent in the second quarter and is on pace for its fastest annual growth rate since expanding 7.6 percent in 2010. The nation’s central bank has cut its benchmark rate four times this year, falling to a record low 3.5 percent last month, to boost growth and has said has room for more reductions as inflation remains tame.

“The group is in a sweet spot and could easily overshoot their target,” said Alex Pomento, head of research at Macquarie Group Ltd.’s Manila unit. “Economic growth is accelerating while the group will get a big boost in the fourth quarter when consumer spending is usually at its strongest.”

Manila-based SM Investments owns the nation’s largest grocery and department store operators, with a network of 193 stores nationwide. It also owns BDO Unibank Inc. (BDO), the nation’s biggest bank by assets, and SM Prime Holdings Inc., the country’s biggest shopping mall operator with 46 centers in the Philippines and four in China.

SM Investments shares rose 2 percent to 815 pesos as of 2:25 p.m. in Manila, heading for sharpest gain since Oct. 17. The stock extended this year’s gain to 40 percent, beating a 25 percent advance in the benchmark Philippine Stock Exchange Index. (PCOMP)

‘Strongest Quarter’

Earnings for the nine months ended Sept. rose 14 percent to 16.1 billion pesos, SM Investments said yesterday.

The company had previously targeted full-year profit growth of 12 percent to 14 percent. Growth at the top of that range would result in net income of 24.2 billion pesos based on its 2011 earnings of 21.2 billion pesos.

“We could exceed our budget because the last three months is our strongest quarter,” Sio said. “The economy is doing quite well, while favorable interest rates and rising income and inflows from abroad are encouraging consumer spending.”

SM Investments derived 33 percent of its 2011 profit in the fourth quarter.

SM Prime (SMPH), the biggest Philippine shopping mall operator, plans to borrow as much as 15 billion pesos next year in peso and dollar denominated bonds to help fund developments, Chief Financial Officer Jeffrey Lim said in a separate interview.

The mall operator, which is 22 percent owned by Sy’s holding company, will use the funds to help finance its 30 billion peso capital expenditure budget, he said.

Capital Spending

“The interest rate is low and the environment is quite attractive,” Lim said. SM Prime opened five Philippine malls in the first nine months of the year and is scheduled to open a shopping center in in Chongqing next month, its fifth in China.

As a group, SM Investments is budgeting 65 billion pesos for capital spending in 2013, up from 56 billion pesos this year, Sio said. The company’s retail and mall ventures will benefit from Christmas and New Year spending, while BDO Unibank raised $1 billion from a rights offer in July to expand its loan books at a time when consumer spending is picking up from the holidays, he said.

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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