SM Prime Q3 net income: P10.7-B (UP 35% y/y)

SM Prime [SMPH 31.00, up 2.0%] [link] said that its Q3 net income was P10.7 billion (+35% y/y), supported by P32.7 billion in consolidated revenues (+20% y/y) and P15.6 billion in consolidated operating income (+17% y/y). Over the first nine months of 2023, SMPH reported P30.1 billion (+37% y/y) in net income, supported by P92.6 billion in consolidated revenues (+26% y/y) and consolidated operating income of P44.5 billion (+29% y/y). On a 9M segmented basis, SMPH’s mall business generated P52.5 billion in revenue (+37% y/y), the residential real estate development business generated P28.7 billion in revenue (+10% y/y), and the offices, hotels, and convention centers business generated P9.5 billion (+33% y/y).

 

MB BOTTOM-LINE: These are healthy increases across the board. One thing that jumps out at me, though, is the underperformance of SMPH’s residential condo business. While the 9M revenue increase of 10% pales in comparison to the massive 30%+ increases in SMPH’s other segments, that 9M number is hiding a fairly decent Q3 performance that generated P11.1 billion in revenue (+20% y/y). Ok, so that’s not exactly in line with the other segments, but it could be significant if we’re trying to figure out whether the condo market is recovering or if these bounces are just a mirage. Anecdotally, while condo prices continue to climb, the secondary market seems to be pretty quiet. There’s a glut of new condos on the market, and a growing inventory of new (and used) condos that are up for sale after rate increases pushed buyers out of their borrowing comfort zones. While it’s an open question whether the BSP will raise rates again this year or not (who knows!), what’s not up for debate is that rates are not coming down any time soon. They’re going to stay “higher for longer”. How much longer, though? And when rates finally do ease, how long will it take for the backlog of new and used inventory to clear before developers see margin growth?

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