{"id":328130,"date":"2024-05-30T22:23:52","date_gmt":"2024-05-30T14:23:52","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=328130"},"modified":"2024-05-30T22:23:54","modified_gmt":"2024-05-30T14:23:54","slug":"stock-in-focus-sm-prime-holdings-smph-30-may-2024-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-sm-prime-holdings-smph-30-may-2024-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: SM Prime Holdings (SMPH) – 30 May 2024 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>SMPH<\/td><\/tr>
Company Name<\/strong><\/td>SM Prime Holdings<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>30 May 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 37.00<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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We set our target price (TP) for SMPH at Php37.00 based on our sum-of-the-parts
(SOTP) net asset value (NAV) estimate of Php46.00\/share, discounted by 20%, the
historical mean. <\/p>\n\n\n\n

Our TP offers a total potential return of 37.3%, including our forecast marginal dividend yield. The current share price, down 20% year-to-date (YTD), is a steal at a discount to our estimated NAV of 41% and implies that the market is only recognizing the value of the mall, residential, office, and hotel segments. The strategic 2,341 hectares of land bank and the 360-hectare Pasay Reclamation project in progress come almost free. We rate SMPH a BUY.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

More malls, more profitable<\/h3>\n\n\n\n

Market saturation seems far-off as SMPH\u2019s Philippine malls and rental income keep growing. Taking 2019 as the base year, the nationwide mall count of SMPH grew by 11 to 85 in 2023, while rental income per square meter (sqm) rose by 5%, which may have been much higher if not for the onset of the COVID-19 pandemic in 2020. From 2021 to 2023, SMPH bravely opened 9 new malls and posted a 3-year compounded annual growth rate (CAGR) of 34% in rental income per sqm. <\/p>\n\n\n\n

For this year 2024, SMPH plans to open 4 new malls to add approximately 440k sqm of gross floor area (GFA). The first of which was opened recently in Caloocan City, Metro Manila. In 1Q24, mall rental income was up 9% y\/y, which is sustainable, in our view. Malls, which we value based on cap rate, account for 59% of our FY24
revenue forecast and 36% of our gross asset value (GAV) estimate for SMPH.<\/p>\n\n\n\n

Reservation sales contraction may just be a short term setback<\/h3>\n\n\n\n

Having focused on the middle market, which we think is the most sensitive to interest rate and inflation movements, the year-on-year (y\/y) contraction in residential reservation sales for the past 3 quarters is understandable. Hang in there as the higher-for-longer interest rate environment may be nearing the end of its era. We cannot tell when exactly, but as soon as the first interest rate cut begins, the demand for SMPH\u2019s residential properties may spike immediately. <\/p>\n\n\n\n

Do note that SMPH is shifting its residential focus to provincial mid-rise buildings (MRBs) from high-rise in Metro Manila. It makes sense to expect a reservation sales level this 2Q24 that is potentially on par with pre-pandemic 2Q19 if the maximum drop quarter-on-quarter (q\/q) is 9%, consistent with the trend we saw last year.<\/p>\n\n\n\n

Land bank and Pasay Reclamation project boost NAV<\/h3>\n\n\n\n

The big boost to our SMPH valuation estimate comes from capital-valued land bank and DCF-valued Pasay Reclamation, which the market does not seem to recognize.
SMPH’s massive reclamation project is on track to meet the target completion by 2028 after working on a catch-up program that addressed the initial delays.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>