We remain partial to Ayala Land Inc. (ALI) and SM Prime Holdings (SMPH) as they have the largest exposure in the residential (resi) and retail segments in the country. Given our optimistic outlook for resi as rate cuts eventually begin and with GDP expected to grow faster as we saw upward revisions on several forecasts, we reiterate our BUY call for ALI with a Target Price of of P41.67 and SMPH with a Target Price of P40.06.<\/p>\n\n\n\n
Our previous company reports on ALI and SMPH highlighted our bullish prospects for the continued improvement of the residential segment moving forward as the rate hike cycle comes to an end alongside the recovery of retail on the back of upward revisions for our GDP forecast by several institutions. We saw Leechiu Property Consultants, Inc. (LPC) agree with our growth prospects for these segments.<\/p>\n\n\n\n
According to LPC, the resi sector has room for growth next year, albeit decentralized, as the attractiveness of locations outside of Metro Manila have slowly been rising. Noting the desire for more space, higher affordability, and holistic lifestyle as reasons for the pickup in attractiveness. We note LPC stating the main growth drivers being IT-BPM industry, OFW remittances, and the overall Philippine economy. ALI is one of the property companies that aims to cater towards this demand shown by their current development of Southmont in Silang, Cavite costing P12-Billion wherein 69% of the project will be residential, 11% Commercial, and 20% Institutional.<\/p>\n\n\n\n
For the narrative on retail growth, we saw 3Q 2023 GDP grow by 5.9%, well above the 4.9% median growth that was expected by analysts. A large portion of GDP, that focuses primarily on consumer spending is the HCFE (Household Final Consumption Expenditure) wherein we also saw growth of 6.4%, 5.5%, and 5.0% for Q1 to Q3 of 2023, respectively. Moving forward, we see SMPH benefit greatly from these progressions given their large exposure to this segment. Albeit retail space vacancy may rise next year, this is primarily due to the upcoming developments of these mall developers not the lack of demand. SMPH\u2019s mall expansion is currently geared towards provinces as they aim to cater future demand specifically for Northern Luzon, Visayas, and progressive cities in Mindanao.<\/p>\n\n\n\n