SM Investments Says Tourism Push to Lift Returns: Southeast Asia

SM Investments Vice Chairman Teresita Sy-Coson
“My father always said tourism is the business of the future,” said Teresita Sy-Coson, vice chairwoman of SM Investments Corp. “The problem is tourism projects have a long gestation period. The asset revaluation opportunity is OK but in terms of returns it’s not that good.” Photographer: Julian Abram Wainwright/Bloomberg

May 14 (Bloomberg) -- SM Investments Corp., Philippine billionaire Henry Sy’s holding company, forecasts return on equity will rise to 15 percent in three to five years as its tourism investments, including a Manila casino, gain traction.

SM Investments, the most valuable Philippine company, has trailed holding companies of other tycoons in return on equity as its tourism projects are only in a starting phase, Vice Chairman Teresita Sy-Coson said in an interview in Manila, where the company is based.

“Some of these businesses are still in the growing stage like the hotels, convention centers, sports arena and resort,” Sy-Coson, daughter of Philippines’ richest man, said in an interview on May 8. “We are happy with 15 percent as long as we hit it every year.”

SM Investments will benefit from an increase in travelers as arrivals in the first quarter rose 10.8 percent to a record 1.27 million, according to the Department of Tourism. The Philippines is counting on casino growth in Manila to draw more tourists and is targeting 5.5 million international visitors this year from 4.3 million in 2012, Tourism Secretary Ramon Jimenez said in February.

“There is room for ROE to grow further,” said Richard Laneda, analyst at Manila-based COL Financial Group Inc. “These tourism-related projects are built on property that otherwise will just be entries in the books that don’t earn income. As these assets are used, this will help in ROE expansion.”

Delayed Returns

SM Investments’ return on equity will rise from 14.3 percent last year, its highest based on data going back to 2003 when it was 8.2 percent. Still, it trails Philippine Long Distance’s 23.9 percent and 18.3 percent at LT Group Inc. of billionaire Lucio Tan and 14.7 percent at George Ty’s GT Capital Holdings Inc.

SM Investments overtook Philippine Long Distance Telephone Co. as the nation’s biggest company by market value last year as faster pace of economic expansion fueled growth at its bank and retail businesses. The company’s profit reached a record 24.7 billion pesos ($600 million) last year. It may increase at least 15 percent this year, Chief Financial Officer Jose Sio said on April 25.

It takes the company longer to realize returns from tourism projects compared with its other businesses, Sy-Coson said.

Tourism Future

The push for tourism has been part of Henry Sy’s plan when he was parlaying a shoe store into shopping malls, department stores and grocers, his 62-year-old daughter said. Sy opened the Mall of Asia in 2006, the largest Philippine shopping mall then, betting the complex will draw local and foreign tourists.

“My father always said tourism is the business of the future,” Sy-Coson said. “The problem is tourism projects have a long gestation period. The asset revaluation opportunity is OK but in terms of returns it’s not that good.”

Tourism projects need at least 15 years of operations to break even while shopping malls have a 10-year average payback period, she said.

“That is what we are struggling with, the long gestation period for tourism projects, like the hotel and the resort,” Sy-Coson said. “There is no overcapacity right now and tourism will only get better than what it is now.”

SM Investments owns convention centers, hotel resorts and a 16,000-seat sports arena. It owns the nation’s biggest shopping mall operator, department store and supermarket chains as well as the country’s biggest bank by assets. It plans to add five hotels in five years.

Its listed property venture, Belle Corp. has partnered with Melco Crown Entertainment Ltd. to build a Manila casino which will open in 2014.

Sy, who migrated from China in 1936, has an estimated net worth of $17.4 billion as of yesterday, according to the Bloomberg Billionaires Index.

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