SHARES in SM Prime Holdings, Inc. edged down last week despite news on its allocation for capital expenditures (capex) this year reaching P100 billion and the Philippine economy expanding by 5.6% in the fourth quarter of 2023.
Data from the Philippine Stock Exchange (PSE) showed 30.82 million shares worth P1.05 billion exchanged hands from Jan. 26 to Feb. 2, making the listed property developer the fourth most actively traded stock in the local bourse last week.
Shares in the Sy-led company finished trading at P33.60 on Friday. The stock price inched down by 0.3% from a week earlier. For the year, the stock rose by 2.1%.
The local market has been buoyed by a prevailing sense of optimism by the easing of the macroeconomic backdrop, said Luis A. Limlingan, head of sales at Regina Capital Development Corp.
He added that the news on the fourth quarter gross domestic product (GDP) affected equities, which caused the PSE index to rise due to a bullish market.
“With the ongoing discussions about potential rate cuts this year, the property sector is in a favorable position as investors expect homebuyer’s appetite to come back, and this bodes well for [ SM Prime’s] performance, with the company having a lion’s share in the property sector,” Mr. Limlingan said in an e-mail.
In the fourth quarter of 2023, Philippine economic growth slowed to 5.6%, from the revised 7.1% expansion in the third quarter.
Meanwhile, the country’s full-year GDP print also stood at 5.6%, below the government’s target of 6-7%, and much slower than the 7.6% expansion in 2022.
Last week, reports showed that the property developer has allocated up to P100 billion for its capital expenditure budget this year.
SM Prime President Jeffrey C. Lim told reporters that the company is also awaiting “more favorable market conditions” before proceeding with the planned initial public offering (IPO) of its real estate investment trust (REIT).”
Additionally, the company’s vice-president for Investor Relations, Alexander D. Pomento, said that SM Prime could proceed with its IPO as early as the second quarter of this year if these “market conditions” improve.
Looking back, SM Prime Holdings announced a plan to launch its REIT portfolio by the second half of 2023, however, in August, the company deferred the market listing of REIT to this year due to unfavorable market conditions, citing headwinds such as higher interest rates, inflation, and market sentiments as reasons for the postponement.
This proposed REIT offering is likely to be valued between $3.5 billion to $4 billion and initially composed of 12 to 15 assets, which will come from the 82 malls the company currently owns and based on the 30 to 35 malls that are now fully matured.
“The commitment of a significant capital expenditure budget signals the company’s plans for expansion or strategic investments,” Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, said in a Viber message.
He added that the decision to postpone the REIT IPO shows a careful approach towards the current market conditions. However, given the company’s considerable cash reserves, this delay may be a smart move as the current market sentiment for equities is unpredictable.
Market players reacted positively to this news based on their perspectives on SM Prime’s financial strategy and the current state of the real estate market, resulting in being optimistic about the company’s potential for growth and may view the capital expenditure as a positive development, according to Mr. Arce.
For Mr. Limlingan, the listed property developer may have hinted that it will be more aggressive with its launches this year compared to 2023.
In the third quarter, SM Prime Holdings ‘attributable net income jumped by 35.1% to P10.68 billion from P7.9 billion in the same period in 2022. Meanwhile, consolidated revenues also soared by 19.8% to P32.7 billion from P27.3 billion.
On the other hand, its nine-month income rose by 36.9% to P30.13 billion, while consolidated revenues for the January to September period grew by 25.7%% to P92.6 billion.
For Mr. Arce, SM Prime’s fourth quarter-2023 attributable net income could reach P8 billion while its full-year 2023 could reach P39.8 billion.
For the year, earnings are expected to increase up to P43.6 billion.
“Traders often look at a company’s financial health and performance [and] positive indicators such as revenue growth, profitability, and efficient management of resources can attract traders,” he said.
He pointed out that market players pay attention to management statements and guidance.
SM Prime’s decision to postpone the planned REIT IPO and wait until favorable market conditions occur indicates a cautious approach, which may be viewed as prudent by some traders. Additionally, they may assess SM Prime’s long-term potential by considering its upcoming projects, expansion plans, and ability to capitalize on future trends in the real estate market.
He pegged support and resistance levels at P31.95 and P34.90, per share, respectively.
Meanwhile, Mr. Limlingan sees fourth quarter 2023 earnings to increase more than P8 billion with the full year 2023 net income estimate of P38 billion.
“For 2024, we are estimating a 29% year-on-year increase in its attributable net income,” he said.
He said that SM Prime is particularly focused on leasing revenues and is enthusiastic about expanding in China which may help reduce over-reliance on the domestic market.
He added that the property developer’s plan to expand its presence in China indicates its strategic vision to tap into new markets and diversify its revenue streams with China offering vast opportunities for the company’s leasing portfolio.
“We plot our stronghold at P33.20, while resistance is at p34.45,” Mr. Limlingan said. — Abigail Marie P. Yraola