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San Miguel Corporation
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: Philippines
- Region: Philippines
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Fundamental View
AS OF 20 Aug 2024- SMC’s FY23 and 1H24 credit metrics and EBITDA improved as we had expected from resilient broad demand recovery, lower power and O&G input costs, and good cost control measures.
- We are comfortable with SMC’s large diversified operations and dominant market share in key sectors, which could outweigh its high airport and infrastructure capex.
- We remain concerned about non-call risk for SMC GP’s c.2026 perps amid SMC GP’s firmly negative free cash flows and expectations that parental support could be unsustainable in the medium-to-long term. We see low non-call risk for the SMC c.2025 perp.
Business Description
AS OF 20 Aug 2024- SMC is a massive conglomerate in the Philippines with business interests across six business segments: Food & Beverage (F&B), fuel refining and retailing, power, packaging, infrastructure, and others.
- Its F&B business is operated through San Miguel Food & Beverage, the largest F&B company in the Philippines with three main divisions: Beer and Non-alcoholic Beverage (including beers and juices), Spirits (gin and Chinese wine), and Food (including packaged foods, animal feeds, poultry and fresh meats).
- SMC’s fuel refining and retailing business is operated through Petron Corporation (~68% stake), the largest oil refining and retailing company in the Philippines, and one of the largest in Malaysia. Petron has a total refining capacity of ~268k barrels/day.
- SMC’s power business is operated through SMC Global Power Holdings (SMC GP, 100% stake), one of the largest power generating companies in the Philippines. It maintains a diversified portfolio across coal (62%), natural gas (26%), and renewable energy (12%) sources.
- Through its packaging business, it manufactures glass containers, plastic crates, pellets, bottles and caps, aluminium cans, and other types of packaging products.
- It operates its Infrastructure business through San Miguel Holdings Corp (SMHC), in which it holds a 100% stake. It currently operates ~190 km of toll roads in the country, connecting high-traffic, arterial routes in Luzon.
Risk & Catalysts
AS OF 20 Aug 2024- SMC’s revenues are concentrated in the Philippines (~80%), which poses geographical concentration risk.
- SMC incurs significant capex, particularly in its power/energy and infrastructure businesses. In October 2020, SMC began construction of the mega New Manila International Airport (requires ~PHP 750 bn of capex spread over 5-7 years). This could keep SMC’s credit metrics elevated and free cash flows in negative territory.
- As a holding company, SMC is reliant on dividend upstreaming from its operating subsidiaries to service its debt, which can be difficult should the operating subsidiaries face cash flow difficulties. We are particularly concerned about SMC GP’s weak financial profile and extension/refinancing uncertainties of its $3.3 bn perpetuals that are first callable from 2024-2026.
- SMC operates in the businesses of thermal power generation and fuel refining, which may be looked at unfavourably by some ESG-focused investors.
Key Metric
AS OF 20 Aug 2024| PHP bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.4% | 72.3% | 71.6% | 72.1% | 72.7% |
| Net Debt to Book Cap | 51.7% | 58.5% | 60.4% | 60.6% | 62.1% |
| Debt/Total Equity | 197.9% | 261.3% | 251.9% | 258.6% | 266.5% |
| Debt/Total Assets | 65.7% | 69.8% | 68.1% | 69.2% | 68.3% |
| Gross Leverage | 8.1x | 9.1x | 8.4x | 8.7x | 8.0x |
| Net Leverage | 6.3x | 7.4x | 7.1x | 7.3x | 6.9x |
| Interest Coverage | 3.1x | 2.8x | 2.1x | 2.2x | 2.2x |
| EBITDA Margin | 17.6% | 12.2% | 13.8% | 12.4% | 12.9% |
CreditSight View Comment
AS OF 20 Aug 2024We have a Market perform recommendation on SMC and its sole c.Jul-25 $ perp; we see limited extension risk for SMC’s perp, yet we don’t see much price upside from current levels. SMC’s c.Jul-2025 trades 131 bp wider than Ayala Corp’s c.Sep-2026, which we think is fair given SMC’s worse liquidity position and persisting extension/refinancing risk of subsidiary SMC GP’s perps (notably the c.2026s) that negate SMC’s larger scale of EBITDA and stronger net leverage. We like SMC’s dominant market position in multiple sectors, long operating track record and diversified operations. Yet it incurs sizable airport and infrastructure capex that would likely keep its credit metrics elevated and free cash flows negative. Meanwhile, we remain watchful of SMC’s ability to support SMC GP past 2025.
Recommendation Reviewed: August 20, 2024
Recommendation Changed: April 05, 2023
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