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SM Investments Corporation: Thriving on Synergy to Sustain Robust Growth

One of the Philippines' largest conglomerates is banking on its diverse strengths to take advantage of the country's continued positive growth prospects.

The facade of the new Conrad Manila

SM Investments Corporation (SM) finds itself in a solid leadership position with the Philippines’ economic growth sustainably fueled by increasing urbanization and an expanding middle class. SM’s interests are spread across the financial services, property, and retail sectors. It is focused on serving  customers, innovation, lever­aging synergies across all business units, and pursuing expansion both organically and through strategic partnerships.

In a highly competitive arena where an enterprise is only  as good as its last fin­ ancial statement, SM sustained growth by ending the previous fiscal year with  a consolidated net  income of PHP28.4 billion (US$600.4 million). The year 2015 marked  an important milestone as the conglomerate celebrated its 1Oth anniversary as a publicly listed firm on the Philippine Stock Exchange. From an initial offering of  PHP184 (US$3.88) per share, adjusted for stock dividends in 2005, SM closed at PHP864 (US$18.23) at the end of 2015, representing growth of 369.6 percent or a compound annual growth rate of  16.7 percent a year, creating significant value for its shareholders.

Solid Enterprise-Wide Growth

For the first quarter of 2016, the company posted a 12 percent growth in  recurring net income, with consolidated net income at PHP7 billion (US$147.7 million). “SM’s underlying growth in the first quarter continues to be solid with the  sustained expansion of the Philip­pine economy,” states Jose T. Sio, Executive Vice President and Chief Financial Officer of SM, adding that  in terms  of strategies, the focus remains on growing its core businesses of retail, financial services, and  property dom­estically.

With PHP211.4 billion (US$4.46 billion) in consolidated sales in 2015, its retail arm, SM Retail is aggressively expanding its nationwide footprint  through multiple formats. Last year saw the opening of 39 new stores under  SM Markets and three new stores under THE SM STORE, its non­food retail business bringing the total department stores to 53 by the end of 2015. SM also announced the merger of its retail assets to make the unit larger and more diverse.

The Conrad Manila affords a sweeping view of the Manila Bay

In banking, customer focus and indus­try growth have made BDO Unibank  and China Bank the largest and 7th-largest banks in the country, respectively. As of end of 2015, BDO  delivered a record net income of PHP25 billion (US$527.4 million),

driven organically by above-industry average  loan  growth, and  inorganically with the consolidation of One Network Bank. China  Bank reported a net  interest growth  of 7.1 percent  to  PHP15.1 billion (US$318.5 million), with net income  grow­ ing   by  9.5  percent to PHP5.6  billion (US$118.1 million). Both banks remain well capitalized with total assets of PHP2 trillion (US$42.2 billion)   for  BDO  and  PHP526.8 billion (US$11.1 billion) for China Bank.

In property, SM Prime Holdings, SM’s property arm, continues to embark on aggressive land banking activities to lock in future values and expand the  group’s portfolio. “We are finding new opportuni­ties for growth in integrated lifestyle property development,” shares  Cora Guidote, Senior Vice President for Investor Relations.

“Integrated developments allow communities better access to  infrastruc­ture  and  master-planned properties  for greater mobility, round-the-clock security, service and convenience.” She added that its recently  opened anchor  development SM Seaside City sits on a 30-hectare complex in the province  of Cebu that will eventually replicate  its Mall of Asia (MOA) development located in the Philippine capital. “We have a masterplan to develop the property, which will accommodate similar features to what we have in MOA complex, like a convention center, the Arena, office and residential buildings,and hotels,” she explains.

The new SM City Seaside sits on a 30-hectare complex in Cebu City.

Beyond Home Shores

With the looming full integration under the ASEAN  Economic Community, SM  is seriously broadening its  international footprint. Its banking business saw BDO Unibank expanding into  Hong  Kong, on top of its 26 overseas remittance and representative  offices across Asia, Europe, North America, and the Middle East. The bank has also forged a partnership with Nomura Holdings to explore potential areas of collaboration, covering retail, asset management and wholesale.

BDO is the largest bank in the Philippines

Like its Philippine malls, SM sees its growing retail presence in China as a catalyst for the development of communi­ties. “We are invested in China through SM Prime where we have six malls,” discloses Guidote. “We recently opened SM Zibo in 2015 in the  heart  of  Shandong  province. This year, we will open our biggest mall in Tianjin with a gross floor area of 564,819 square meters,”she adds.

With regional integration, competition is bound to become even more intense across all of the markets  SM serves. The conglomerate, however,remains confident in its position in the long run. “For SM, market leadership is but a consequence of the hard work and the scale of resources we have poured into the country. With the new administration aiming for more inclusive growth through increased  infrastructure spending, greater support for agriculture, increased  foreign  direct  investments, and higher fiscal spending in provincial  areas, particularly in Mindanao—all these can only be good not just for SM but for the whole country,” ends Sio.

Date: 
Monday, August 1, 2016
Source: 
Forbes Asia/ Advertorial
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