San Miguel Corporation

Detailed Information

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Fundamental View

AS OF 19 Sep 2022
  • SMC holds a dominant market position in various sectors of the Philippine economy; its diversified business profile insulates its earnings amid economic downturns and has enabled it to maintain a lengthy operating track history.

  • SMC operates in the rapidly growing, emerging economy of the Philippines which has a large and youthful population. It is well positioned to benefit from rising consumption levels, electricity demand and mobility in the country which should benefit its F&B, power, fuel refining and infra segments, respectively.

  • A number of SMC’s businesses (fuel refining, power, infra and cement) require heavy upfront capital costs. While expanding, these businesses necessitate additional debt incurrence that typically strain SMC’s stretched leverage metrics and free cash flows.

Business Description

AS OF 19 Sep 2022
  • 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 boasts a total refining capacity of ~268k barrels/day and accounts for ~30% of the Philippines’ fuel needs.
  • SMC’s power business is operated through SMC Global Power Holdings (SMCGP, 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, metal caps and crowns, aluminium cans, and various 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 19 Sep 2022
  • SMC’s various businesses (beer, packaging, fuel refining and retailing, infrastructure) are exposed to moderate levels of COVID-19 uncertainties, where any severe resurgence of infections and social restrictions would hinder sales growth.

  • SMC’s revenues are concentrated within the Philippines (~80%), which exposes the company’s earnings to potential domestic economic downturns, unstable political regimes and seismic activities.

  • A number of SMC’s businesses are highly capital intensive, require large upfront capital costs and have long gestation periods. In October 2020, SMC began construction of the mega New Manilla International Airport (located in Bulacan), which will require large investments and raise its capex and working capital requirements through this decade.

  • 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.

  • SMC operates in the businesses of thermal power generation and fuel refining, which may be looked at unfavourably by some ESG-focused investors.

Key Metrics

AS OF 19 Sep 2022
PHP bn LTM 1H22 FY21 FY20 FY19 FY18
Debt to Book Cap 64.4% 62.3% 61.6% 63.4% 64.8%
Net Debt to Book Cap 48.6% 45.8% 41.3% 45.1% 48.1%
Debt/Total Equity 181.0% 165.6% 160.7% 173.1% 184.3%
Debt/Total Assets 55.6% 55.0% 55.1% 54.7% 56.3%
Gross Leverage 6.6x 7.0x 9.3x 6.3x 6.1x
Net Leverage 5.0x 5.1x 6.3x 4.5x 4.5x
Interest Coverage 3.5x 3.1x 2.1x 2.7x 3.3x
EBITDA Margin 15.1% 17.1% 15.5% 15.6% 15.2%
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CreditSights View

AS OF 19 Sep 2022

With an operating history spanning over a century, SMC enjoys a dominant market position in F&B, packaging, power, fuel refining and infra in the Philippines. It operates in the rapidly growing Philippines economy, which has a large and youthful population. However, some of its businesses are vulnerable to COVID waves and consequent restrictions. A number of its businesses (including power, fuel refining and infra) require large capital costs, which has led to elevated credit metrics. It has large capex needs ahead too, owing to the massive Bulacan airport it is building. Given the worsening credit profile of its subsidiary SMC GP, and worsening capital market conditions, we downgrade our recommendation on SMC to Hold (from Outperform).

Recommendation Reviewed: December 09, 2022

Recommendation Changed: October 26, 2022

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