FREE Stock in Focus: SMC (1 Oct 2018) by Regina Capital Dev’t Corp.

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All in all, San Miguel Corp. (SMC) is winning the favors of the Duterte administration, as SMC projects such as the Bulacan airport are being prioritized. Either way, 2018 all points to a strong finish for SMC.

Therefore, we are pegging our Fair Value Target Price of SMC at a high of PHP 189.00/share for 2019, a 12% potential upside from its last-trade price, based on a blended valuation method. At that level, SMC trades at 11x Price-Earnings (P/E) on 1.25x book value.

If the price movement over the last 2 months alone were any indication of public interest, then conglomerate San Miguel Corporation (SMC) might have gain the market’s favor back.

With an overwhelming 31.79% appreciation since August, as well as similar rallies for units GSMI (+27.05%) and FB (+55.54%), the Ramon Ang-led parent firm finally returned to the investment radar of both domestic and foreign funds.

Two catalyst might have brought the renewed interest on the firm, specifically:

(1) the solid 1st Half (1H) 2018 performance and a bullish outlook, at least for 2018; and

(2) the reshuffling within businesses that might generate better efficiencies.

First, if its 1H 2018 is any indication as to how SMC would fair by year-end, then 2018 is looking to be a banner year for the company, as most of its businesses are looking at double-digit profit growth. PCOR still contributes the lion’s share of revenue, is on its way to a stable to a mid-to high teens growth from a spike in global crude prices, continued demand and PHP depreciation.

Also, its energy sector is expected to improve contributions following the inclusion of recently-acquired Masinloc plant in its foray. On the other hand, RCDC sees the reshuffling of business and consolidation of all food & beverage units into a single entity caused participants to re-evaluate their exposure to SMC.

Participants took the merger positively, as the highly-related food & beverage are now under one management, with various potentials for synergies and cost reduction from both their extensive nationwide network.

Further, it did not sit well with stakeholders that SMC’s crown jewel – San Miguel Beer – is clumped under the parent firm, alongside cost-extensive infrastructure unit, which basically bleeds SMB of its earnings as infra return on investment usually takes longer. The re-organization provided value for shareholders as they’re allowed to invest directly into SMC’s units of the same sector, without the offsetting on an unrelated business.

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