Doubts on fate of reclamation projects weigh down SM Prime Holdings

By Carmina Angelica V. Olano
Researcher

INVESTORS bet on the future of Sy-led SM Prime Holdings, Inc. after President Rodrigo R. Duterte said he would not approve proposed Manila Bay reclamation projects unless proponents have safety measures for the environment and public health.

SM Prime was the second most actively traded stock last week, with a total of 57 million shares worth P2.31 billion exchanging hands from Jan. 14 to 17, data from the Philippine Stock Exchange (PSE) showed.

The stock was lower by 3.1% on a week-on-week basis to P40.70 apiece on Friday from its P42.00-per-share close on Jan. 10. Since the start of the year, the stock has fallen by 3.7%.

“Value traded for SM Prime surged [last] week due to news that President Duterte will unlikely approve the proposed Manila Bay reclamation projects due to environmental concerns. This includes SM Prime’s 360-hectare Pasay reclamation…,” said Zoren Philip A. Musngi, research analyst at Mandarin Securities Corp. in an e-mail.

He noted that most investors were “alarmed” by this recent development as they expect the bulk of the company’s “upside and growth prospects” is gauged on the reclamation project.

“I think that most analyst forecasts have already incorporated the project into their stock price target for SM Prime,” he added.

For Timson Securities, Inc.’s Head of Online Trading and Trader Darren Blaine T. Pangan, the news came as “negative” to long-term investors of SM Prime.

“Being a blue-chip stock that is usually held by investors for the long-term, it may have affected investor sentiment negatively [last] week since it may risk the company’s long-term revenue projections,” he said in an e-mail.

In a radio interview on Monday, Mr. Duterte said that to approve proposals to reclaim the 10,000-hectare stretch along Manila Bay, proponents must have safety measures for the environment and public health. He described the scope of the said proposals as “almost mind-boggling” and stupefying.”

In a disclosure on Dec. 6, SM Prime said it had received the official notice from the city government of Pasay to proceed with its 360-hectare reclamation project within the latter’s municipal waters.

The said project will be connected to the Mall of Asia Complex, which is also a joint reclamation-land project by both parties transformed into a business district housing a “world-class” mall, offices, residences, entertainment arena, five-star hotel and a convention center, the company told the stock exchange.

As part of the joint venture, SM Prime is in charge of developing the actual raw land reclamation and horizontal development works. The company said it had finalized its selection of consultants and contractors, who are “globally reputable companies.”

On Feb. 1 last year, Mr. Duterte signed Executive Order No. 74, which control and supervision of the Philippine Reclamation Authority from the Department of Environment and Natural Resources to the Office of the President, empowering him to give final approval on all reclamation projects.

As of end-September, SM Prime reported a 17.7% growth in its attributable net income to P27.595 billion. Its consolidated revenues during the nine-month period rose by 14% to P85.033 billion, while consolidated operating income grew by 17.4% to P41 billion.

It ended 2018 with 72 malls in the Philippines and seven shopping malls in China.

Mandarin Securities’ Mr. Musngi said SM Prime’s fundamentals remain “stable” in 2020, supported by a robust consumer spending , lower interest rates, benign inflation, and stable peso-to-US-dollar exchange rate.

“However, there may be some weakness in the company’s first quarter earnings likely due to the impact of the Taal volcano eruption, as SM Prime has several properties (hotels, malls) in the area and surrounding provinces,” he said.

He expects the company’s full-year 2020 net income to reach around P42 billion, “driven by stable same-store rental growth from its mall portfolio of around 6-7%.”

For this week, analysts expect the price of SM Prime shares to continue its downward trend seen at the start of last week, despite last Friday’s uptick — a 0.74% increase from Thursday’s close at P40.40 per share.

“We expect price action to be mostly on the downside, as the trend (uptrend) seems to have reversed due to recent developments,” Mandarin Securities’ Mr. Musngi said, referring to Mr. Duterte’s statement.

“We see price testing the support level of P40.00 while resistance level would be at P41.00,” he added.

For Timson Securities’ Mr. Pangan: “Depending on investor sentiment [this] week, we may have to watch if its nearest support which is at P40 will hold, or if its nearest resistance around P42 will be broken, since the stock seemed to have pulled back from its highs this month as profit-taking may have ensued.”