MAYBANK Investments Securities Group adjusted its target price (TP) for the Sy family-led SM Investments Corp. (SMIC) after adjusting SM Retail's same-store sales growth (SSSG) forecast. "We slightly lower our TP for SM due to a lower DCF (discounted cash flow) valuation for SM Retail (-3.6 percent) while reflecting a rise in our TP for BDO (plus 3 percent) as well as continuing to apply a 10 percent discount to SM's valuation to derive our SOTP (sum-of-the-parts)-based TP," Maybank said in a report dated Sept. 2, 2024. "We continue to like SM as it is still a domestic consumption play, owning the largest bank, retail network, and mall operator in the country. We reiterate BUY with a TP of P1,125 for one of our top picks in the Philippines," it said. For SM Retail, Maybank said it lowered its overall SSSG long-term outlook (2025-2035) to 2 percent from 3.2 percent as it expects SSSG to normalize. "This reduces our DCF valuation of SM Retail by 3.6 percent," it added. SM Retail accounts for 27 percent of SM's gross net asset value or NAV, Maybank noted. SM Retail's first-half revenue grew 4.3 percent year-on-year (YoY) in 2024, driven by its food retail segment improving by 6.4 percent and specialty segment increasing by 2 percent. Net income, however, declined 9 percent to P7.6 billion compared to P8.4 billion a year earlier. Maybank lowered its target price for SMIC to P1,125 per share from P1,127 previously due to the lower DCF valuation of SM Retail, while reflecting a rise in its TP for Banco de Oro. "SM is currently trading at 25 percent discount to real-time NAV, deeper than its five-year discount of 10 percent," Maybank said. "Note that BDO and SMPH (SM Prime Holdings) are among our top picks in the banking and property sectors and make up 66 percent of SM's gross NAV." "We continue to like SM as it is still a domestic consumption play, owning the largest bank, retail network, and mall operator in the country," Maybank emphasized. "SM could be a good proxy to the Philippines amidst improving macroeconomic conditions," it added. SMIC reported a consolidated net income of P40.2 billion in the first half, up 10 percent YoY, on the back of a five percent hike in revenues to P301.4 billion driven by its banking, property, and retail businesses. "A potential catalyst for SM to rerate would be a further recovery in SM Retail's earnings on improving consumer sentiment amidst lower inflation," Maybank said, adding that "another boost for SM could be election spending in first half 2025." SMIC shares on Tuesday climbed P9.00, or 1.01 percent, to P904.50 apiece amid a 0.58 percent drop for the benchmark Philippine Stock Exchange index.
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