SM Prime Holdings Inc. expects profit from its China operations doubling in three to four years with its continued expansion in the world’s second-largest economy.
The company expects to open four more malls in tier-two and tier-three Chinese cities, where the government is pouring money to jumpstart growth.
This year, SM Prime is spending P9 billion initially on new developments in China. The amount is the same as its capital expenditure for expansion and new projects in the Philippines.
Hans T. Sy, SM Prime president, said the China operations contributed 5 percent to the group’s first-quarter net income of P2.12 billion, up 12 percent, up from P1.89 billion in the same quarter last year.
The growth was driven by a 13 percent increase in consolidated revenues to P6.07 billion from P5.39 billion in the first quarter of last year.
Revenue was boosted by a 6 percent growth in rental income and revenues from four new malls opened in 2010 in the Philippines, Sy said.
China operations, with the existing three malls in Xiamen, Jinjian and Chengdu, posted a profit of P100 million, against P50 million in the first quarter of 2010, with consolidated revenue growing more than 50 percent, Sy said.
Over the long term, the China operation is seen contributing 10 percent of SM Prime’s bottom line, with revenue growth of 20 percent and profit growth of 30 to 40 percent, said Jeffrey C. Lim, SM Prime chief finance officer.
He said the company is getting the attention of Chinese leaders, leading to invitations to set up malls in other cities.
SM China is set to open its fourth mall – SM Suzhou – in Jiangsu province by the second half of the year. It will open SM Chongqing, located in one of China’s largest cities, in 2011 and SM Tianjin and SM Shandong in 2012. SM Tianjin will be the biggest mall of SM Prime in China.
SM Prime is considering spinning off its China operation later with a plan to list the operational unit in the equities or real estate investment trust (REIT) exchanges in China, Hong Kong or Singapore.
In the Philippines, SM Prime is planning to add more malls and expand some of its 43 existing malls.
SM Prime is building an SM mall in Cebu City’s South Road project.
Sy said SM "should have expanded much, much earlier" in Cebu. SM Prime has the 273,804-sq. m. SM City Cebu mall in the prime city of the south.
SM Prime is also building its second mall in Davao which is due for opening next year. In addition, it is expanding the area of its existing 78,735 sq.m. Davao mall.