Philippine conglomerate SM Investments Corp. expects strong domestic consumer spending to generate 14%-15% net profit growth this year and in the next few years, the group’s senior executives said Thursday.  SM, which owns the south-east Asian nation’s largest mall developer and operator, also projects its recurring income to expand at a robust pace of 18% this year.

That’s slower than the 22% growth last year due partly to higher expenses mainly associated with the merger of its banking unit, Banco de Oro Universal Bank, with the country’s third-largest lender Equitable PCI Bank, SM Investments’ chief financial officer Jose Sio told Dow Jones Newswires in an interview. 

Sio and other senior SM Investments officials were in Singapore to update investors on the group’s financial performance and plans.

Later in the year, they will also go to Hong Kong, the U.S. and Europe.  SM posted a net profit of PHP3.3 billion (US.3 million) in the first quarter, up 14% year-on-year, aided by strong property sales and the robust growth of its shopping mall business. 

Its SM Prime unit, largely devoted to developing shopping malls, will be opening three new malls this year to bring the total to 30, while four existing ones will be expanded. ‘We’re bullish about consumer spending.

It always increases because the economy itself is actually consumption driven,’ said Jeffrey Lim, executive vice president of SM Investments unit SM Prime Holdings Inc.

SM Investments, controlled by the family of Philippine business tycoon Henry Sy, plans to spend PHP20 billion this year for its own and its subsidiaries’ projects, mainly in property, and projects capital spending to swell to PHP95 billion over the following five years. 

‘For this year, we have enough cash already but it does not mean that we will not go into financing,’ Sio said, noting that the group could seek outside cash either to fund its projects, improve its balance sheet leverage or simply to avail itself of tax incentives. 

The group aims to fund around two-thirds of the PHP95 billion spending through its internal operations and the rest through dividend receipts and outside funds.  ‘Our gearing ratio is less than 20% so we have much room (to borrow).

If we need money, we can easily come out and borrow money,’ Sio said.  SM expects property – which now contributes only around 12% to total group revenue – to become a bigger contributor to the group’s earnings in the coming years, aided by the low domestic interest rate environment. 

Currently, most of the group’s income is still derived from three key areas namely retail merchandising, mall operations and banking.  ‘What is interesting in the group right now and in the next five years will be our property business.

This is the area where we are training our resources and manpower,’ Sio said. Aside from residential property development, the firm is also pursuing tourism development and development of business process outsourcing buildings. 

Recently, SM signed agreements with Carlson Hotels Asia Pacific and Accor S.A. to jointly develop two hotels in the Philippines.  Along with Carlson Hotels, it will develop and manage a 350-room hotel at the SM BayCity, the holding company’s property at a reclamation area in Manila Bay.

The hotel will be located near the SMX Convention Center that will open next year.  Accor and SM, meantime, will develop and manage a 400-room property in Cebu City. The hotel will be located near SM Investments’ shopping mall in the central Philippine city. 

The projects are part of SM’s aims to become a major, if not the dominant, company in the Philippine property industry.  Income from residential property are starting to build up while its first revenues from commercial projects will come on stream in the fourth quarter of this year, reports presented to investors showed. 

‘The booming property market now tells us the (residential) projects will do well in the next year or two,’ thanks to the low interest rate levels for home financing, strong interest from overseas Filipino workers, and strong consumer confidence, said Josefino Lucas, the group’s executive vice president for real property.