SM PRIME HOLDINGS(SMPH.PM)：MORE GROWTH DRIVERS; INITIATE BUY

July 3, 2014 Initiation COMPANY RESEARCH | SEE PAGE 28 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS SM Prime Holdings (SMPH PM) More growth drivers; Initiate BUY  Initiate at BUY and Street-high TP of PHP21.67. Positive synergies created with SM group’s property assets gathered under one umbrella.  Earnings of new SMPH anchored by mall operations, with additional growth from residential, office and hotel/convention.  2013-2016F earnings CAGR of 19% sets it up to become one of the biggest landlords in ASEAN. Better equipped for future developments SM Prime Holdings (SMPH) has morphed from a pure mall operator to a more diversified property company with three additional operating divisions in the property spectrum consisting of commercial (office), residential and hotel/convention centres. Still, 83% of total EBITDA is recurring while 17% is fr om residential. As a residential developer, SMPH will benefit from robust demand that will be a growth driver in the medium term. We see net income doubling to PHP35b in 2018 from 2013’s PHP17b. Lessons learned from residential development Residential arm SM Development Corp has been overhauled to avoid missteps made in the past. As an initial step, inventory will be reduced from the current 12,000 units to 4,000, which by our estimate will be in 2015. New projects thereafter will be constructed only after at least 80% has been taken up, in contrast to 5% previously. We forecast meaningful contributions from SMDC by 2017. 37% upside potential to our target price Using mostly a DCF-based approach, we estimate SMPH’s NAV/sh at PHP27.09. With a 20% discount, our target price is PHP21.67 or 31x 2014 PER. SMPH is currently trading at 23x, slightly below its five-year average of 24x. We believe the new SMPH justifies a higher multiple given proven strength in its recurring business, which its new businesses can leverage from. Key Data Share Price Performance Maybank vs Market Share Price: PHP15.98 MCap (USD): 10.2B Philippines Target Price: PHP21.67(+36%) ADTV (USD): 6M Real Estate(New)BUY52w high/low (PHP)3m avg turnover (USDm)Free float (%)Issued shares (m)Market capitalizationMajor shareholders:-SM Investments Corp.50.9%-SY HENRY SR4.4%-OppenheimerFunds, Inc.2.8%19.58/14.1027,77222.8PHP440.5B6.2909510010511011512012513013514012.013.014.015.016.017.018.019.020.021.022.0Jul-12Nov-12Mar-13Jul-13Nov-13Mar-14SM Prime Holdings - (LHS, PHP)SM Prime Holdings / PSEi Philippine SE Index - (RHS, %)1 Mth3 Mth12 MthAbsolute(%)(5.4)8.6(2.7)Relative to index (%)(8.1)2.0(8.1)PositiveNeutralNegativeMarket Recs520MaybankConsensus% +/-Target Price (PHP)21.6718.8015.3'14 PATMI (PHPm)19,26519,1430.6'15 PATMI (PHPm)23,60221,38710.4Source: FactSet; MaybankFYE Dec (PHP m)FY12AFY13AFY14EFY15EFY16ERevenue57,214.459,793.966,534.975,783.683,631.7EBITDA27,197.230,116.734,498.240,873.046,291.3Core net profit16,202.217,550.719,264.823,601.827,364.7Core EPS (PHP)0.580.630.690.850.99Core EPS growth (%)18.98.39.822.515.9Net DPS (PHP)0.180.180.190.240.28Core P/E (x)27.225.122.918.716.1P/BV (x)3.02.72.52.32.1Net dividend yield (%)1.11.11.21.51.7ROAE (%)11.811.311.312.713.4ROAA (%)6.35.75.35.75.9EV/EBITDA (x)19.016.015.613.712.9Net debt/equity (%)37.043.453.359.670.0 Rommel Rodrigo(63) 2 849 8839 rommel_rodrigo@maybank-atrke.com July 3, 2014 2 SM Prime Holdings Table of Contents Better equipped for future developments 3 Key Catalysts 4 Recommendation 6 Valuation 6 Company Overview 9 Malls 12 Residential 15 Commercial 17 Hotels and Convention 18 Appendix 20 July 3, 2014 3 SM Prime Holdings Better equipped for future developments Even after its restructuring, the new SM Prime Holdings Inc (SMPH) still will have earnings driven mainly by recurring businesses. SMPH will now have recurring income not only from malls, but also from offices, hotels and convention centres. In 2013, 79% of total EBITDA was recurring while 21% came from residential and we forecast this will be little changed in 2015. Notably, most property companies are aiming to beef up their recurring revenues to dampen the cyclicality of earnings. SMPH, even with the addition of the residential segment through SM Development Corp (SMDC), already has achieved that goal. We believe SMPH has the most balanced portfolio in our property universe in terms of the risk it runs when the property cycle turns. While SMDC winds down inventory to lower levels, SMPH continues to benefit from its large recurring base. We estimate SMPH can double its earnings in the next five years to PHP35b from PHP17.1b in 2013, still driven mostly by new malls in the Philippines and China while seeing strong contribution i