SM Prime Holdings, Inc.

FRI 07 MAY 2021

1Q21 profit up 78.1% Q/Q

but outlook remains uncertain

1Q21 profit recovers from weak 4Q20 but still lags consensus. SMPH’s 1Q21 net profit
reached Php6.48 Bil, implying a growth of 78.1% compared to the previous quarter. This
was despite revenues amounting to Php20.8 Bil which was 1.9% lower compared to 4Q20.
HOLD
Net income improved q/q most likely due to lower operating expenses and lower interest
expenses. Compared to the same period last year, SMPH’s net income for 1Q21 was lower TICKER: SMPH
by 22.2% due to the high base last year as quarantine restrictions began late March 2020. FAIR VALUE: 37.20
CURRENT PRICE: 34.50
Overseas demand boosts take-up sales. One of the main reasons for the resilience of
SMPH’s residential segment is the growing take-up sales despite the ongoing pandemic. UPSIDE: 7.83
Sales of SMDC projects have been particularly strong overseas (OFW and foreign nationals)
with sales growing 116% y/y to Php26.24 Bil and now accounting for 81% of total take-up
sales. Meanwhile, local sales declined 51.3% y/y to Php6.16 Bi, accounting for just 19% of
take-up sales for the quarter.

Profit forecast reduced as mall recovery suffers setback. We are reducing our mall
revenue forecast by 33.3% this year and 19.5% next year as we feel that the mall business’
recovery suffered a major setback with the reimposition of MECQ in NCR and neighboring
provinces. On the positive side, we reduced our operating and interest expense forecasts
after 1Q21 numbers came in lower than expected. Income tax expense was also cut after
factoring in the reduction in the corporate income tax rate resulting from the passage of
the CREATE law. Our new net income forecast for this year is Php22.73 Bil, 2.7% lower than
our original forecast. For 2022, our new forecast is lower by 3.3% at Php32.74 Bil

Maintain HOLD with FV estimate of Php37.20. After factoring our lower net income
forecast, we reduced our fair value estimate on SMPH from Php41.20 to Php37.20. We are
also maintaining our HOLD rating. There is increasing uncertainty on the timing of the mall
business’ recovery which is reflected in our lower fair value estimate. Nevertheless, our fair
value estimate assumes some relaxation of quarantine restrictions in the fourth quarter of
this year as more people get vaccinated. Upside to our forecast would come from a faster-
than-expected easing of mobility restrictions.

FORECAST SUMMARY

Year to December 31 (Php Mil) 2017 2018 2019 2020 2021F 2022F
Revenues 90,922 104,081 118,311 81,972 86,206 103,963
change y/y 13.9% 14.5% 13.7% -30.7% 5.2% 20.6%
EBITDA 49,588 57,983 67,517 39,269 46,623 60,072
% change y/y 15.1% 16.9% 16.4% -41.8% 18.7% 28.8%
EBITDA Margin 54.5% 55.7% 57.1% 47.9% 54.1% 57.8%
EBIT 40,629 48,327 56,692 28,928 35,798 46,821
change y/y 15.2% 18.9% 17.3% -49.0% 23.7% 30.8%
EBIT Margin 44.7% 46.4% 47.9% 35.3% 41.5% 45.0%
Core Net Profit 27,574 32,173 38,086 17,860 23,286 33,345
change y/y 15.8% 16.7% 18.4% -53.1% 30.4% 43.2%
Net Profit Margin 30.3% 30.9% 32.2% 21.8% 27.0% 32.1%
Core EPS (in Php) 0.955 1.114 1.319 0.618 0.806 1.155
change y/y 15.6% 16.7% 18.4% -53.1% 30.4% 43.2%

RELATIVE VALUE
P/E(X) 36.13 30.97 26.16 55.79 42.79 29.88 Richard Lañeda, CFA
ROE(%) 11.2% 12.0% 13.2% 5.9% 7.4% 10.0% Senior Research Manager
Dividend Yield 0.8% 1.1% 1.1% 1.0% 1.0% 1.0% richard.laneda@colfinancial.com
so urce: SM P H

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of the
COL Financial website as these may be subject to tampering or unauthorized alterations.
 FRI 07 MAY 2021
EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

1Q21 profit recovers from weak 4Q20 but still lags consensus

SMPH’s 1Q21 net profit reached Php6.48 Bil, implying a growth of 78.1% compared to
the previous quarter. This was despite revenues amounting to Php20.8 Bil which was 1.9%
lower compared to 4Q20. Net income improved q/q most likely due to lower operating
expenses and lower interest expenses. Compared to the same period last year, SMPH’s
net income for 1Q21 was lower by 22.2% due to the high base last year as quarantine
restrictions began late March 2020.

Exhibit 1. Results Summary

% % of estimate
1Q20 1Q21
in Php Mil change COL Consensus
Revenues 25,787 20,799 -19.3% 20.7% 20.2%
EBITDA 14,632 11,352 -22.4% 21.7% 26.0%
EBITDA margin 56.7% 54.6% -3.8%
Operating income 11,880 8,668 -27.0% 21.6% 25.2%
Operating income margin 46.1% 41.7% -9.5%
Net income 8,320 6,477 -22.2% 27.1% 18.1%

Source: SMPH, COL estimates, Bloomberg

Exhibit 2. Q/Q comparison

in Php Mil 4Q20 1Q21 % change

Revenues 21,212 20,799 -1.9%
EBITDA 9,194 21,212 23.5%
EBITDA margin 43.3% 54.6% 25.9%
Operating income 6,509 8668 33.2%
Operating income margin 30.7% 41.7% 35.8%
Net income 3,636 6477 78.1%

Source: SMPH

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

Revenues flattish Q/Q as higher mall revenues largely

offset lower residential revenues

Mall revenues improve Q/Q

Total mall revenues in 1Q21 were up 10.5% q/q to Php7.33 Bil driven by the 10% growth
in local mall revenues.
Management attributed the improvement in Philippine mall revenues to the increasing
number of operating mall tenants during the quarter. We also believe SMPH reduced
rent concessions given to tenants in 1Q21.

However, with the recent spike in COVID-19 cases and implementation of stricter
quarantine measures starting 2Q21, the recovery in the local mall business will once again
be derailed. SMPH will have to reinstate rent concessions to aid tenants get through the
challenging operating environment.

Exhibit 3. Revenue breakdown

in Php Bil 1Q20 1Q21 % change 4Q20 1Q21 % change

Malls 12,227 7,331 -40.0% 6,632 7,331 10.5%
Residential 11,414 11,929 4.5% 13,258 11,929 -10.0%
Commercial 1,261 1,218 -3.4% 1,026 1,218 18.7%
Hotels and conventions centers 886 320 -63.8% 296 320 8.4%
Total 25,787 20,799 -19.3% 21,212 20,799 -1.9%
Source: SMPH

Residential segment remains resilient

With the mall business facing immense challenges, SMPH’s residential business has
become SMPH’s biggest revenues contributor with Php11.9 Bil in revenues for 1Q21. The
segment has remained resilient in the face of the pandemic as the group continues to
recognize revenues from incremental construction completion. Although 1Q21 residential
revenues were 10% lower q/q, they were 4.5% higher y/y. The segment is also expected
to remain resilient this year as it did last year.

COL Financial Group, Inc. 3

 FRI 07 MAY 2021
EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
UNCERTAIKN

FRI 07 MAY 2021

Overseas demand boosts take-up sales

One of the main reasons for the resilience of SMPH’s residential segment is the growing
take-up sales despite the ongoing pandemic. Sales of SMDC projects have been
particularly strong overseas (OFW and foreign nationals) with sales growing 116% y/y to
Php26.24 Bil and now accounting for 81% of total take-up sales. Meanwhile, local sales
declined 51.3% y/y to Php6.16 Bi, accounting for just 19% of take-up sales for the quarter.

Exhibit 4. Take-up sales breakdown

32.4

24.8

Source: SMPH

Profit forecast reduced as mall recovery suffers setback

We are reducing our mall revenue forecast by 33.3% this year and 19.5% next year as we
feel that the mall business’ recovery suffered a major setback with the reimposition of
MECQ in NCR and neighboring provinces. We were originally expecting a scaling back of
rent concessions followed by further easing of government restrictions. However, with
the Philippines seeing a second wave of infections and the slow roll out of the vaccination
program, there is increasing uncertainty on how fast restrictions will be eased.

On the positive side, we reduced our operating and interest expense forecasts after 1Q21
numbers came in lower than expected. Income tax expense was also cut after factoring in
the reduction in the corporate income tax rate resulting from the passage of the CREATE
law. These changes cushioned the impact of lower revenue on our net income forecast.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

Our new net income forecast for this year is Php22.73 Bil, 2.7% lower than our original
forecast. For 2022, our new forecast is lower by 3.3% at Php32.74 Bil

Exhibit 5. Changes to forecast

2021E 2022E
in Php Mil Old New change Old New change
Total Revenues 100,698 86,206 -14.4% 115,431 103,963 -9.9%
Mall Revenues 49,037 32,694 -33.3% 62,270 50,102 -19.5%
Residential Revenues 44,150 47,150 6.8% 45,000 46,581 3.5%
Other Revenues 7,511 6,362 -15.3% 8,161 7,279 -10.8%
Operating Expenses 60,570 50,408 -16.8% 62,602 57,142 -8.7%
Operating profit 40,128 35,798 -10.8% 52,828 46,821 -11.4%
Interest Expense 11,468 8,873 -22.6% 12,041 8,873 -26.3%
Net income 23,935 23,286 -2.7% 34,500 33,345 -3.3%

Source: COL estimates

Maintain HOLD with FV estimate of Php37.20

After factoring our lower net income forecast, we reduced our fair value estimate on
SMPH from Php41.20 to Php37.20. We are also maintaining our HOLD rating. There is
increasing uncertainty on the timing of the mall business’ recovery which is reflected
in our lower fair value estimate. Nevertheless, our fair value estimate assumes some
relaxation of quarantine restrictions in the fourth quarter of this year as more people get
vaccinated. Upside to our forecast would come from a faster-than-expected easing of
mobility restrictions.

COL Financial Group, Inc. 5

 FRI 07 MAY 2021
EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

SM Prime Holdings, INCOME STATEMENT (PHPMIL)

Inc. (SMPH) Revenues

2017
90,922
2018
104,081
2019
118,311
2020
81,972
2021E
86,206
2022E
103,963
% Growth 13.9% 14.5% 13.7% -30.7% 5.2% 20.6%
COMPANY BACKGROUND EBITDA 49,588 57,983 67,517 39,269 46,623 60,072
SM Prime Holdings, Inc.​is one of the % Growth 15.1% 16.9% 16.4% -41.8% 18.7% 28.8%
Operating Profit 40,629 48,327 56,692 28,928 35,798 46,821
largest integrated property developers
% Growth 15.2% 18.9% 17.3% -49.0% 23.7% 30.8%
in Southeast Asia that offers innovative
Interest Expense (5,474) (7,540) (8,833) (8,597) (8,873) (8,873)
and sustainable lifestyle cities with the Other Income/(Expense) 793 1,179 1,302 1,986 1,986 1,986
development of malls, residences, offices, Pretax Income 35,948 41,966 49,162 22,317 28,911 39,934
hotels and convention centers. It is also the Tax Expense (7,823) (9,055) (10,373) (4,324) (4,770) (6,589)
largest, in terms of asset and income base, Net Income 27,574 32,173 38,086 17,860 23,286 33,345
% Growth 15.8% 16.7% 18.4% -53.1% 30.4% 43.2%
in the Philippines. SM Prime is the largest
Core Net Income 27,574 32,173 38,086 17,860 23,286 33,345
mall operator in the Philippines with more
% Growth 15.8% 16.7% 18.4% -53.1% 30.4% 43.2%
than 7 Mil sqm of gross floor area. SMPH EPS 0.95 1.11 1.32 0.62 0.81 1.15
has also ventured into China, putting up % Growth 15.6% 16.7% 18.4% -53.1% 30.4% 43.2%
seven malls with more than 1 Mil sqm of Core EPS 0.95 1.11 1.32 0.62 0.81 1.15
GFA. % Growth 15.6% 16.7% 18.4% -53.1% 30.4% 43.2%

REVENUE BREAKDOWN BALANCE SHEET (IN PHPMIL)

33%
33%

33%
59%
59%
5%
3% 5%
3%
5%
3%

Residential Hotels and Conventions

Residential centers centers
Hotels and Conventions Commercial Malls Malls
Commercial

ntions centers Commercial Malls

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 EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

INVESTMENT THESIS: CASHFLOW STATEMENT (IN PHPMIL)

Most exposure to the consumer sector 2017 2018 2019 2020 2021E 2022E
Pretax Income 35,948 41,966 49,162 22,317 28,911 39,934
SMPH is the biggest mall operator in the
Depreciation & Amortization 8,959 9,655 10,825 10,342 10,825 13,251
Philippines with more then 60 malls with Other Non-Cash Exp (Gains) (2) 557 210 - - -
more than 7.7 Mil sqm of gross floor. The Interest Expense (Income) 4,260 5,711 7,086 7,390 7,666 7,666
second largest operator has less than half Decrease (Increase) in Working Cap 5,328 -2,443 -4,917 16,399 -1,766 -7,661
Operating Cash Flow 45,777 45,964 51,728 52,123 40,865 46,600
with less than 3 Mil sqm of gross floor area.
Capex -26,791 -31,371 -51,404 -30,100 -40,120 -50,158
Correspondingly, SMPH derives 72.3% of Interest and dividends received 1,427 1,994 2,054 1,207 1,207 1,207
its income from malls, the largest among Decrease (Increase) in other investments 1,148 -28,109 -3,382 0 0 0
property companies. This makes SMPH the Investing Cash Flow -41,012 -64,078 -48,615 -28,893 -38,913 -48,951
Proceeds (Payment) Debts 27,452 26,904 16,407 16,479 23,837 23,837
most defensive among property companies.
Payment of Cash Dividends -8,278 -10,875 -11,133 -9,819 -9,819 -9,819
Interest Paid -5,156 -7,193 -8,712 -8,597 -8,873 -8,873
Reclamation projects present value Others 158 3,798 -3,872 0 0 0
creation potential Financing Cash Flow 14,176 12,633 -7,310 -1,937 5,145 5,145
Change in Cash 19,171 -5,605 -4,167 21,293 7,098 2,795
SMPH has proposed to reclaim 360
hectares of land in Pasay and another 300 KEY RATIOS
hectares in Paranaque for a combined 660 2017 2018 2019 2020 2021E 2022E
hectares. SMPH will shoulder the project EBITDA Margin (%) 54.5% 55.7% 57.1% 47.9% 54.1% 57.8%
cost of Php110 Bil and will keep 49% of the OPM (%) 44.7% 46.4% 47.9% 35.3% 41.5% 45.0%
NPM (%) 30.3% 30.9% 32.2% 21.8% 27.0% 32.1%
land, translating to a cost of Php37,400/
Times Interest Earned (X) 7.42 6.41 6.42 3.36 4.03 5.28
sqm. GIven that the current value of land Current Ratio (X) 1.61 1.45 1.60 1.75 1.80 1.86
in the Bay City is between Php150,000/ Net D/E Ratio (X) 0.46 0.59 0.61 0.58 0.60 0.62
sqm and Php200,00/sqm, the projects Days Receivable 136.45 123.55 165.47 165.47 165.47 165.47
holds significant upside potential for the Days Inventory 106 376 355 357 379 403
Asset T/O (%) 16.9% 17.2% 17.7% 11.8% 11.8% 13.3%
company.
ROAE (%) 11.2% 12.0% 13.2% 5.9% 7.4% 10.0%

Best candidate for REIT listing MAJOR CORPORATE DEVELOPMENTS (5-YEARS)

SMPH has the biggest portfolio of Consolidation of SM's property assets (SMDC, SM Land, and other property assets)
mature leasing assets therefore it is the into SMPH through share swaps
11/5/2013

best candidate for a REIT listing if the

implementing rules and regulations were Acquisition of 47% of OCLP Holdings 11/7/2014
amended to be more beneficial for property
companies. Through a REIT listing, SMPH
will be able to unlock the value of its assets
and recycle capital for further expansion.

COL Financial Group, Inc. 7

 FRI 07 MAY 2021
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FRI 07 MAY 2021

Valuation NAV COMPUTATION

Methodology Shopping malls

Value (PhpMil) Value (Php/Sh) % of GAV
693,015 24.00 51.1%
% of NAV Valuation Methodology
58.3% DCF
Commercial properties 41,075 1.42 3.0% 3.5% EBITDA cap rate
Hotels and Convention centers 4,749 0.16 0.3% 0.4% EBITDA cap rate
Residential properties 54,633 1.89 4.0% 4.6% DCF
Stake in OCLP Holdings 15,433 0.53 1.1% 1.3% Book value
Landbank 170,153 5.89 12.5% 14.3% Market value
Reclamation project 378,234 13.10 27.9% 31.8% DCF
Net debt -168,079 -5.82 -14.1%
Net Asset Value 1,189,213 41.18
Less: Discount to NAV (30%
113,470 3.93
on reclamation project)
FV estimate 1,075,742 37.20
source: COL estimates

RELATIVE VALUATION

P/E EPS Growth

2020E 2021E 2020E 2021E
RLC 9.37 9.10 6.1% 2.9%
ALI 31.53 22.19 -54.7% 42.1%
MEG 8.85 6.92 -36.4% 28.0%
SMPH 55.79 42.79 -53.1% 30.4%
VLL 8.68 5.70 -54.7% 52.2%
FLI 7.89 5.73 -46.2% 37.7%
Industry Ave 20.35 15.40 -39.8% 32.2%
Industry Median 9.11 8.01 -49.6% 34.0%

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 EARNINGS ANALYSIS I SMPH: 1Q21 PROFIT UP 78.1% Q/Q BUT OUTLOOK REMAINS
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FRI 07 MAY 2021

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 9