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Philippines' SM finding malls more attractive than banks

Giant conglomerate rides real estate earnings to offset slumping bank unit

SM Prime Holdings' Mall of Asia, one of the Philippines' largest shopping malls.

MANILA -- SM Investments, the Philippines' most valuable conglomerate, on Wednesday said half-yearly net income increased by 9% to 16.6 billion pesos ($328.2 million), after sustained growth in the real estate business countered slowdown in the banking unit, which was hobbled by higher costs.

Consolidated revenues, meanwhile, increased 7% to 181.6 billion pesos, the company said in a press release.

Earnings expansion in the January-June period was slower than results last year, when the economy perked up due to spending related to the May national elections. In the first half of 2016, SM's net income grew by 11% to 15 billion pesos, as revenues rose 8.5%.

SM Prime Holdings, the investment giant's real estate unit which runs a network of malls and residential towers in the Southeast Asian nation, reported a net income of 14.4 billion pesos, up by 14%. Revenues climbed 10% to 43.2 billion pesos.

Revenues from mall operations jumped 10% to 25.7 billion pesos, after adding three more malls to end the first half with a total of 63 shopping centers. To sustain growth of the mall business, which has provided a steady support for the company despite tapering growth of the condominium sector, the company plans to end 2018 with 74 malls in the Philippines. In China, where it currently operates seven malls in secondary cities, it aims to build one shopping center per year.

Residential business revenues, largely drawn from condominium development, grew 5% to 13.9 billion pesos. Meanwhile, the value of reservations rose 22% to 27.6 billion pesos, equivalent to an 8% increase to 8,699 units, suggesting that its focus on more affordable units is paying off.

The commercial properties group, which handles the conglomerate's office leasing business, saw its revenues grow by 14% to 1.5 billion pesos, driven largely by expanding business processing outsourcing industry. Revenues from hotels and convention centers surged 73% to 2.2 billion pesos due to the opening of Conrad Manila last year.

The real estate unit's performance offset lackluster results at SM's main banking unit, BDO Unibank, where net income barely grew at 13.3 billion pesos after higher expenses following the integration of its insurance and rural banking units.

BDO, since taking over BDO Life (formerly Generali Life Assurance Philippines) last year, has increased investments in its insurance arm to better compete with GT Capital Holdings' Metropolitan Bank and Trust, which has a partnership with French insurer AXA, and Ayala-led Bank of the Philippine Islands, which has a tie-up with Hong Kong-based AIA Group.

China Banking, SM's other bank, grew its net income by 10% to 3.6 billion pesos, reflecting an industry-wide growth in savings and deposit accounts underpinned by a growing macro-economy.

SM Retail, which runs specialty shops mostly located within the group's malls, increased its net profit and sales by 6% to 5.2 billion pesos and 131.6 billion pesos, respectively. The growth has been fuelled by the aggressive expansion of its shops, including convenience store Alfamart. SM Retail and its Indonesian partner plan to open 10 branches per month.

But amid increasing competition, first-half growth was slower than the 14% expansion for the same period last year.

SM, which has set aside around $1.4 billion in capital expenditures for 2017, would continue to take advantage of the growing economy, President Frederic DyBuncio said.

"SM will continue to capture this momentum through nationwide expansion and by investing in high growth opportunities," said DyBuncio, who recently led the group's forays into logistics and worker dormitories.

SM's shares closed at 830 pesos on Wednesday, up 1.22% from the previous session.

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