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SM Investment Corporation Case Study

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SM Investments Corporation, SM Investments or SMIC is a holding company with interests in shopping mall development and management, retail, real estate development, banking and tourism. The SM Group was founded by Henry Sy, Sr. it has become one of the largest conglomerates in the Philippines.

SM Retail reported a net income for the first nine months of the year of Php4.1 billion, up 6.7% year on year, while sales increased 8.7% to Php110.8 billion. EBITDA amounted to Php7.6 billion, up 13.5% year on year, for an EBITDA margin of 6.9%. Net margin for the period stood at 3.7% From January to September 2012, SM Retail grew its number of stores by a total of 25 stores, consisting of 5 department stores, 4 SM Supermarkets, 4 SM Hypermarkets, and 12 SaveMore stores. As a result, the group now has a total of 193 stores, consisting of 46 department stores, 37 SM Supermarkets, 34 SM Hypermarkets, and 76 SaveMore stores.

In line with improving consumer sentiment and economic growth, the group will be continually expanding its various store formats, with particular emphasis on SaveMore stores. This stand-alone store format, which is similar to a typical neighbourhood grocery store, has gained wide market acceptance and serves communities marked by the absence of organized retail. On the department store business, initiatives are being undertaken not only to improve the stores’ look and feel, but also to promote and enhance shoppers’ convenience. New store designs and lay-outs, as well as innovative display fixtures aimed at enhancing the presentation of merchandise collections are being introduced. Also, in line with the department store business’s consumer focus, it has completed the roll-out of point-of-sale technology that would enable it to more efficiently manage high-volume, high value transactions involving complex promotional and pricing structures.

SM Prime Holdings, Inc. (SM Prime), the Philippines’ dominant shopping mall developer and operator, exceeded its 2012 profit growth target for a second straight year as it registered a 16% increase in consolidated net income to Php10.53 billion for the full year, as compared to Php9.1 billion in 2011. Total revenues for the year rose by 14% to Php30.73 billion. EBITDA increased 12% to Php20.7 billion, for an EBITDA margin of 67%. These results include the operations of the five SM malls in China, in the cities of Xiamen, Jinjiang, Chengdu, Suzhou, and Chongqing. SM Prime’s better-than-expected performance was largely due to rentals from new SM Supermalls launched in 2011 and 2012 coupled with a robust same-store rental growth of 8%. Moreover, SM Prime’s shopping malls in China continued to perform well, with net income amounting to Php1.10 billion in 2012, a 24% increase from Php0.89 billion in 2011. SM Prime President Mr. Hans T. Sy said, “We are very pleased to end 2012 with excellent results. We are confident that the Philippine growth story, which we saw unfold last year will continue in 2013.

In line with this, we will proceed with our aggressive expansion plans and continue to pursue new opportunities for growth. We sincerely thank all our stakeholders for another year of remarkable growth and for the confidence they have entrusted upon us.” For full year 2012, SM Prime’s consolidated rental revenues contributed 84% to the total, and grew by 14% to Php25.90 billion. New rental space came from SM City Olongapo, SM City Consolacion, SM City San Fernando, SM City General Santos, SM City Lanang, and SM Chongqing. Operating expenses for full year 2012 increased by 14%, to Php13.99 billion, largely due to expenses related to mall expansion. Income from operations posted a 14% growth from Php14.62 billion in 2011 to Php16.73 billion in 2012.

Cinema ticket sales from January to December 2012 increased by 14% due to a series of both local and international blockbuster movies shown during the period namely “The Avengers”, “Twilight Saga: Breaking Dawn Part II”, “The Amazing Spiderman”, “This Guy’s in Love with U Mare”, “The Mistress”, and “Sisterakas”. In addition, the conversion of all cinema screens to digital and the roll-out of cinema turnstile system have helped make the cinema viewing experience more convenient for movie-goers. For 2013, SM Prime is scheduled to open SM Aura Premier in Taguig City and SM Cauayan in Isabela. SM Megamall will be expanded with the construction of Building D. By the end of this year, SM Prime will have 48 malls in the Philippines and five in China with an estimated combined GFA of 6.7 million sqm.

SM emerged over the years as a buyer of choice for real property as the company regularly acquired land for its malls. It is therefore no surprise that SM eventually engaged in property development, largely as a residential developer now, with interests also in commercial and leisure development as well. SM’s real property operations are all under SM Land, Inc., which has three segments, namely residential, commercial, and leisure. SM Land’s residential arm is the publicly-listed SM Development Corporation or SMDC, while its commercial and leisure development are handled separately by the Commercial Properties Group and Costa del Hamilo, respectively. A trailblazer in the middle market for residential condominiums in Metro Manila, SMDC quickly emerged as the leading developer, in terms of number of units sold and in sales value. Much to the surprise of many, SMDC developed homes that attracted a large pool of buyers who are looking for affordable, yet luxury homes in strategic locations.

Living by its tagline, “The Good Guys!” SMDC takes pride in delivering its homes on time, with the best quality and five-star amenities such as grand lobbies, swimming pools, function rooms, and libraries, among others that address the needs and aspirations of a better lifestyle for thousands of Filipinos. Its projects are all strategically located near transport hubs, schools, malls and other commercial districts. As the housing backlog remains large, SMDC aims to launch more projects in various cities in Metro Manila, with provisions to also develop homes in key cities in the Visayas and Mindanao. Meanwhile, Highlands Prime, Inc. is the leading high-end residential developer within Tagaytay Highlands, an exclusive, world-class mountainside resort and residential complex. On the commercial front, SM Land has been developing office buildings at the Mall of Asia Complex and in key cities suited for locators in the business process outsourcing industry.

This sector is a main driver for the Philippine economy and will continue to grow by 20% to 25% per annum. At the Mall of Asia Complex, SM Land has completed two out of four E-com buildings namely: OneE-com and TwoE-Com Centers both having a capacity of close to 70,000 sqm each. SM Land has broken ground for ThreeE-com Center. Another noteworthy project that was recently launched at the Mall of Asia Complex is the 62,000-sqm Mall of Asia Arena. This ultra-modern sports and multi-event complex offers world-class facilities and amenities, and could accommodate up to 20,000 spectators. Meanwhile, Hamilo’s Pico de Loro Cove in Nasugbu, Batangas, which is SM Land’s large-scale ecotourism and leisure project, now benefits from full-swing operations, with all its facilities now open and being used by unit owners, members, and their guests. Amenities include a beach and country club, restaurants, sports facilities, a ferry service and the Pico Sands Hotel.

SM’s bank network is the largest in the Philippines with its 41% interest in BDO Unibank and 20% interest in China Banking Corp. In 2Q 2012, BDO became the country’s largest bank in terms of assets with 744 branches nationwide. Chinabank is the 8th largest with 307 branches nationwide.

SM Hotels and Conventions Corporation forged ahead with its growth and expansion in 2010 by inaugurating the 400-room Radisson Blu Hotel Cebu in Cebu City. The hotel is located very near an SM shopping mall, SM City Cebu, and is a deluxe tourist destination offering world-class facilities and amenities such as two ballrooms, a large swimming pool, and an in-house spa. Another project in the company’s portfolio is the recently renovated 260-room Taal Vista Hotel in Tagaytay City. It is a landmark hotel in Tagaytay, which in turn is a highly popular, scenic resort city known for its breathtaking views and cool climate. The hotel continues to attract a large number of tourists. SM Hotels and Conventions Corporation recently opened the Pico Sands Hotel at the Pico De Loro Cove of Hamilo Coast, which is SM’s large-scale resort and ecotourism project in Nasugbu, Batangas. Pico Sands Hotel, with a GFA of 10,800 sqm, offers 154 first-rate guestrooms. Its amenities include elegant indoor and alfresco dining areas, a spa and fitness section, and a bar lounge, among others.

Members and guests of Hamilo Coast may also enjoy the facilities and amenities of Pico De Loro’s Beach and Country Clubs. SM’s conventions business provided during the year 28,000 square meters of leasable space at the SMX Convention Center, which is located at the Mall of Asia Complex, and in two other SM trade and convention halls. The leasable space was utilized for large-scale events, which include trade exhibits, conventions, and corporate functions, among others. Meanwhile, at the Pico De Loro Cove of Hamilo Coast in Nasugbu, Batangas, the newly opened Pico Sands Hotel attracted numerous guests during the recent long weekends. Amenities include a beach club, a country club, various restaurants, and water sports facilities, among others. In addition, there are currently four residential condominium projects in Pico De Loro.

SM Foundation is the socio civic arm of the SM Group of Companies through which it helps the less fortunate in the communities it serves. These are areas within the vicinity of SM Department Stores and Supermalls that need assistance. The Foundation has four areas of advocacy: education through scholarship programs and donations to schoolhouses; mall-based outreach programs; health oriented projects like medical missions, a mobile clinic, and hospital activity centers and religious community projects.

We overcame these challenges by employing various marketing tools and systems enhancement products that made our operations more attuned with the demands of the business said JORGE T. MENDIOLA, President, SM Department Stores. 1. How was the competitive environment last year? How did SMIC deal with it? 2. What is SMIC outlook for the country’s food retail industry in the near term? 3. How have SMIC been preparing for the risks and challenges brought about by climate change? What are your disaster preparedness initiatives?

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