Wednesday, 22 July 2009

Philippines' SM looks to China to fuel further growth

Ian Sayson and Frank Longid
Manila Standard
http://www.manilastandardtoday.com/?page=news2_july21_2009

BILLIONAIRE Henry Sy, whose retail empire has made him the richest man in the Philippines, may build as many as three malls a year in China to expand in the first major economy to rebound from the global recession.

“We have 34 malls in the Philippines and China is a market that’s 13 times bigger” by population, said Hans Sy, president of SM Prime Holdings Inc., a unit of his father’s SM Investments Corp. SM Prime, the country’s biggest mall operator, is spending P5.5 billion this year in China.

SM Investments, whose 63-percent share-price gain this year has outperformed the Philippine benchmark, is increasing capital spending for 2009 by almost a third. Expanding in China, the world’s most populous country, might help open opportunities for the family’s other businesses, said Teresita Sy-Coson, Henry Sy’s eldest child and vice-chairman at SM Investments.

“The malls will be an excellent outpost for the group,” said Alex Pomento, Philippine strategist at Macquarie Group.

“They get a gauge of China’s consumer pulse and a springboard for the group’s other businesses.”

SM Prime planned to open one mall a year in China starting 2010 and might accelerate that pace to as many as three shopping centers annually by 2013, Hans Sy said.

Many Chinese provincial officials had visited the Philippines and they saw what we are doing here, and they wanted to replicate that, ‘‘Sy-Coson said.

‘‘Even now there are invitations from provincial officials to go into their areas.’’

Henry Sy, 84, immigrated from China at the age of 12 and built the country’s fourth-biggest listed company from a shoe store he started in 1948, amassing a net worth estimated by Forbes magazine at $2.7 billion.

SM Investments, whose assets include Banco de Oro and the SM supermarket and department store chain, forecasts profit will grow between 12 percent and 14 percent this year, chief financial officer Jose Sio said.

The company kept its target even after the government cut the low end of its economic growth forecast from 3.1 percent to 0.8 percent, the weakest since 1998. Funds sent home by overseas Filipinos were sustaining consumer spending at SM-branded shops and malls, Sy-Coson said.

Remittances, which account for 10 percent of the Philippine economy, grew 2.8 percent to $6.98 billion in the first five months from a year ago. The inflows reached a record $16.4 billion in 2008, 11 times the country’s total net foreign direct investment, and it is forecast to hit the same level this year.

About 20 percent of the consumer spending passes through SM Investments’ malls and stores, and the company captures 33 cents of every dollar spent by families of Filipinos working abroad, according to Macquarie’s Pomento.

SM Prime sought to boost the share of its spending in China as it acquires more sites for expansion, Sio said. This year’s investment in China is 46 percent of the P12 billion SM Prime will spend on expansion.

China’s $3.21-trillion economy is 22 times the Philippines’ $144 billion. China’s economic growth accelerated to 7.9 percent in the second quarter, while the Philippines’ slowed to 0.4 percent in the first quarter, the weakest in a decade.

“China has a big consumer market, it will continue to evolve,” Henry Sy said in an interview, which was also attended by Sy-Coson, Sio and Hans Sy.

‘‘It has improved and can do things better than other countries,’’ said Sy, who started selling rice, sardines and soap at his father’s Manila store in 1936.

SM Prime doesn’t sell retail space, preferring long-term recurring rental income to short-term gains, and will apply the same principle in China, said Hans Sy. SM Prime would focus on the mainland’s emerging cities because their development and consumers’ profiles closely resemble those at home, he added. Bloomberg

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