Merger Plans Boost SM Shares

By James A. Loyola

February 20, 2013, 6:21pm

SM Investments Corporation and SM Prime Holdings Inc. reached a record intra-day highs topping P1,000-mark on news that it is studying a proposal to merge its subsidiaries engaged in the property development business to create what is seen to be the country’s top real estate company.

According to SMIC vice chairperson Teresita Sy, they are studying the merger proposal although the plan has not been “finalized yet in terms of what companies will be included.”

SMIC controls SM Prime Holdings Inc., the country’s top mall developers; SM Development Corporation, which is among the country’s biggest residential condominium developer; SM Land which is focused on the tourism industry, and Highlands Prime Inc. which is a high-end property developer.

SM Prime has a market capitalization of P334.96 billion, SMDC has a market value of P79 billion, while HPI is worth P4.92 billion. SM Land is not publicly-listed. SMIC also partly owns Belle Resources Corporation which has a market capitalization of P55.75 billion.

On the other hand, Ayala Land Inc., currently the top real estate firm has a market capitalization of P437.31 billion, lower than the P474 billion market capitalization of SMDC, SM Prime, HPI and Belle combined (excluding SM Land).

“This move is a tacit admission that Ayala Land’s strategy as diversified developer is better than SM’s approach of fragmented units focusing on specific real estate segments,” James Lago, head of research at PCCI Securities Corp. in Manila.

Intra-day, shares of SM Prime peaked at P20.80 while SMIC shares hit a record P1,015 yesterday. SMDC also hit a record P9.48 per share as Highlands Prime Inc. surged to P3.28.

“A diversified SM property builder will give Ayala Land a stronger competitor,” Lago said. “Sy will have a developer with stable earnings – it will get a steady income stream from the malls’ rental earnings and income from the development and sale of property, which is subject to market cycles.”

SM Prime and SMDC had P52.33 billion in combined sales in 2012, compared with Ayala Land’s P49.9 billion revenue. SM Prime had P10.53 billion in profit last year compared with Ayala Land’s P9.04 billion peso net income.

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