FREE Stock in Focus: SM (19 Nov 2018) by First Metro Securities

PinoyInvestor’s “Stocks in Focus” summarizes our partner brokers’ Fundamental Analysis of a company and explains the rationale for the stock’s long-term Target Price and broker’s recommendation. Learn how you can use this report in the PinoyInvestor guide.

 

NOTE: This Premium Stock in Focus report is prepared by PinoyInvestor’s partner stockbroker and is given to you for free. Do you want other PSE stock market reports? Simply register here to get a free account. Or get a Premium Access subscription for as low as PHP 399.00 to get full access to all exclusive broker reports!

Summary of Broker’s Recommendation
BROKER RECOMMENDATION TARGET PRICE ISSUED ON
First Metro Securities HOLD 928.92 19 Nov 2018

 

Check How Many Brokers Recommend this stock

Stock Rankings: All Stocks

Our Partner Broker’s Recommendation

Consensus rates SM as a HOLD with median Target Price of PHP 928.92 per share (+5.3% upside from last close). SM is currently trading at 24.75x P/E and 2.87x P/BV. This is at a premium vs peers, given mean forward P/E at 14.67x and mean forward P/BV at 1.86x.

 

Our Partner Broker’s Analysis

Earnings in line with expectations

SM Investments Corp. (SM) posted 3Q 2018 net income of PHP 9.6 billion (+8.2% y-o-y), bringing its 9-month (9M) 2018 net income to PHP 26.2 billion (+10.4% y-o-y), in line with consensus estimates.

Its 3Q 2018 consolidated revenues grew by 12.3% y-o-y to PHP 109.9 billion, bringing 9M 2018 revenues to PHP 307.4 billion driven by double-digit income growth in its property business. The property segment accounted for 43% of total earnings, while the banks and retail comprised 36% and 21% of the total, respectively. Historically, property, banking, and retail businesses accounted for 39%, 39%, and 22% of SM’s net income, respectively.

 

Management targets to incrementally lower costs

Management noted that higher leasing expense (distribution expansion), higher fuel costs, and expansion of the Savemore and Alfamart stores led to lower margins in the food retail. Management however expects the slight margin compression is temporary, and plans to recover the costs through better deals with its suppliers. In terms of how higher inflation may affect its department store business, SM do not intend to significantly raise its margins since the company believes that its core competency is in the affordability of its products. Meanwhile, management also said that it does not plan to integrate its unit, 2GO Group, Inc. (2GO) in SM Retail’s distribution since 2GO has a distinct business model and has its own pool of clients.

 

Mall expansion to focus in North and South Luzon

Management remained positive that it is on track to turn over at least one mall (SM Ormoc) by end-2018. For 2019-2020, SMPH is targeting to open malls mostly in North and South Luzon in the next two years. For next year, malls will be opened in SM Daet, Butuan, Olongapo, Balanga Bataan, Sorsogon, Tagum, Tuguegarao, Mindoro and Caloocan. In 2020, malls will be opened in Roxas, Calamba Turbina, Tanza, San Fernando, La Union, Laoag, Zamboanga and Malolos.

 

Specialty Store expansion intact

Management remains on track to open 500 Alfamart stores by year–end. As for the whole SM Retail Group, management targeted 3,000 total stores in the next five years as it aims to open more food and specialty stores. To meet the said target, SM Retail is open to introducing more foreign brands.

 

See all reports for this stock here.

This report is prepared by PinoyInvestor’s partner broker below. Sign up to this stock broker to avail of their complete trading brokerage services:

First Metro Securities
First Metro Securities

First Metro Securities is one of PinoyInvestor’s partners in delivering superior and reliable stock research reports that help Filipino investors make smart stock investing decisions! Learn more about them here.