SM Investments Corp. (SM) leapfrogged Philippine Long Distance Telephone Co. (TEL) to become the nation’s most valuable stock, as Southeast Asia’s fastest economic growth prompted a shift in consumer spending to property and leisure.
SM Investments, the holding company of the country’s richest man Henry Sy, rose 0.2 percent on Dec. 28, boosting its market capitalization to 549.5 billion pesos ($13.4 billion), compared with a value of 546.6 billion pesos for Philippine Long Distance, or PLDT. The Philippine stock market was shut on Dec. 31 and Jan. 1 for holidays.
“This change isn’t a fluke,” Alex Pomento, strategist at Macquarie Group Ltd.’s Manila unit, said in a phone interview. “This is an inevitable change of the guards and it is a reflection of the nation’s consumer spending pattern.”
Shares of SM Investments rallied 51 percent last year, outpacing the Philippine Stock Exchange Index’s (PCOMP) 33 percent gain, as the fastest economic expansion since 2010 boosted profits at the company’s retail, property and banking ventures. PLDT, the nation’s largest phone company, trailed with a 0.5 percent drop as rising competition and a shift from calls and text messages to social media offered by Facebook Inc. and Twitter Inc. squeezed earnings.
Manila-based SM Investments closed 2 percent higher at 900 pesos today, while PLDT gained 1.2 percent to 2,560 pesos. The benchmark Philippine Stock Exchange Index added 0.8 percent.
SM Investments owns the nation’s biggest grocery and department store operators. It also controls BDO Unibank Inc. (BDO), the biggest bank by assets, and SM Prime Holdings Inc. (SMPH), which runs 51 shopping mall centers in the Philippines and China. It also holds stakes in companies that are building a Manila-casino resort with Melco Crown Entertainment Ltd.
SM’s milestone is “indicative of the growing confidence in the nation’s consumer market,” said Rico Gomez, who helps manage $2.2 billion at Manila-based Rizal Commercial Banking Corp. “Both companies rely on consumer spending but PLDT is in a struggling sector while SM is in industries that are viewed very positively at the moment.”
The $225 billion Philippine economy expanded 7.1 percent in the third quarter of last year, the fastest pace in Southeast Asia. The nation’s central bank has cut its benchmark rate four times in 2012, falling to a record low 3.5 percent in October, to boost growth and has said it has room for more reductions.
The economy may grow as much 7 percent in 2012 and accelerate to 7.5 percent in 2014 as the government increases spending to a record and lures investments to upgrade the nation’s infrastructure, Economic Planning Secretary Arsenio Balisacan said on Dec. 18.
Consumer spending, which accounts for three-fourths of the Philippine economy, is getting a boost from record remittances sent home by Filipinos living and working overseas. For every peso Filipinos spent in the third quarter, about 4.8 centavos went to communications while 50.9 centavos went to food, drinks, clothes and home appliances, according to data compiled by the government.
Communications as a percentage of total consumer spending was 4.8 percent in the third quarter, down from 5.3 percent in 2010. The share of spending on food, drinks, clothes and appliances, leisure, restaurants and hotels increased to 58 percent from 57 percent over the same period.
Nine-month profit at SM Investments rose 14 percent to 16.1 billion pesos from a year ago, the company said in a statement on Nov. 8. PLDT’s net income slid 6 percent to 28.7 billion pesos as rising competition triggered price cuts and customers preferred communicating over the Internet instead of sending mobile text messages.
PLDT’s revenue from short-messaging services, or SMS, fell 2 percent to 32.5 billion pesos in the first nine months of 2012, it said in a statement on Nov. 6. Revenue from voice calls declined 7 percent as volumes dropped. Wireless broadband sales rose 3 percent, it said.
SM Investments may beat its annual profit growth target of as much as 14 percent in 2012, Chief Financial Officer Jose Sio said on Nov. 9. The company’s profit is forecast to rise 15 percent in 2013, according to seven analysts surveyed by Bloomberg. PLDT’s net income is expected to rise 4.9 percent, according to a Bloomberg poll of 14 analysts.
“SM Investments is in a growth path while earnings at PLDT has stagnated due to competition and investments it had to make for future growth,” Pomento said. Macquarie has an outperform rating on SM Investments and a neutral call on PLDT.
Sio didn’t respond to text messages sent to his mobile phone for a comment. Philippine Long Distance Chairman Manuel Pangilinan couldn’t be reached in his office for a comment because of the holidays.
SM Investments closed at 882 pesos on Dec. 28, 4.5 percent higher than the average 12-month share price estimate of 844 pesos forecast by nine analysts in a survey by Bloomberg. PLDT closed at 2,530 pesos, 9.4 percent lower than the 2,793 pesos average target price of 12 analysts surveyed by Bloomberg.
Profit at PLDT, jointly owned by Hong Kong’s First Pacific Co. and Nippon Telegraph and Telephone Corp., tumbled 21 percent in 2011 after reaching a peak of 40.2 billion pesos in 2010.
PLDT will need more time to reach its 42 billion peso profit forecast for 2014, Chris Young, chief financial adviser, told analysts in a Nov. 7 conference call.
“SM Investments has a broader Philippine exposure,” Pomento said. “It’s investments in mining and gaming, both rising industries, also provide SM Investments with more kick.”
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