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Region: Philippines
San Miguel Corporation
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: Philippines
- Region: Philippines
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Fundamental View
AS OF 22 Apr 2025SMC’s FY24 earnings and credit metrics EBITDA improved YoY as we had expected from resilient broad-based demand recovery, lower thermal coal input costs, new project contributions, 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 persisting high airport and infrastructure capex.
We see low non-call risk for the c.2025 and c.2026 perps in the SMC complex, given SMC’s strong ability and willingness to repay earlier perps at SMC GP, good access to diverse funding channels, and deep reputational concerns upon a non-call.
Business Description
AS OF 22 Apr 2025- 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 22 Apr 2025SMC’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.
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 22 Apr 2025| PHP bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 65.2% | 66.4% | 72.3% | 71.6% | 73.0% |
| Net Debt to Book Cap | 46.7% | 51.7% | 58.5% | 60.4% | 61.2% |
| Debt/Total Equity | 187.0% | 197.9% | 261.3% | 251.9% | 269.9% |
| Debt/Total Assets | 64.1% | 65.7% | 69.8% | 68.1% | 68.2% |
| Gross Leverage | 10.9x | 8.1x | 9.1x | 8.4x | 8.3x |
| Net Leverage | 7.8x | 6.3x | 7.4x | 7.1x | 7.0x |
| Interest Coverage | 2.1x | 3.1x | 2.8x | 2.1x | 2.1x |
| EBITDA Margin | 15.5% | 17.6% | 12.2% | 13.8% | 14.0% |
CreditSight View Comment
AS OF 22 Apr 2025We 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 close to par and fairly to Ayala Corp’s c.Sep-2026 in our view. 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: April 22, 2025
Recommendation Changed: April 05, 2023
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group
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Search topics about wealth insights and investments.UnionBank of the Philippines
- Sector: Financial Services
- Sub Sector: Banks
- Region: Philippines
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Fundamental View
AS OF 11 Mar 2025The bank has historically generated higher returns than peers, but it geared its focus significantly towards the retail segment through acquiring Citi’s Philippine retail portfolio in 2022 and organic growth, which brought retail loans to more than half the total book.
Returns have suffered despite the good boost to core revenues, as asset quality deterioration from the riskier growth direction resulted in high credit costs which we have forewarned. Continued rounds of capital infusions from shareholders have thus been required. The reserve cover is maintained relatively thin.
Business Description
AS OF 11 Mar 2025- UnionBank of the Philippines was incorporated in 1968, and listed on the Philippine Stock Exchange in June 1992. Principal shareholders are Aboitiz Equity Ventures (49.66%), Insular Life (16%), & Social Security System (18%).
- UBP undertook mergers with International Corporate Bank in 1994 and International Exchange Bank in 2006. City Savings Bank (a thrift bank) was purchased in Jan 2013. City Savings received merger approval with PR Savings (a bank engaged in motorcycle, agri-machinery, & teachers' salary loans) in Dec 2018 from the BSP. It acquired the Citi Philippines retail franchise in 2022.
- The loan book is broadly split 40% wholesale loans and 60% retail loans (comprising 33% credit cards, 22% mortgages, 33% salary loans and 12% others including teachers loans, salary loans and motorcycle loans by the thrift bank subsidiary, City Savings Bank, and 3% UnionDigital).
Risk & Catalysts
AS OF 11 Mar 2025Any rating downgrade of the Philippine sovereign or reduction of shareholding by Aboitiz Equity Ventures would negatively impact UBP.
The bank’s aggressive retail expansion has improved the NIM, but negatively impacted overall profitability because of high credit costs (particularly since 2H23) which we have forewarned. We continue to dislike its focus on riskier retail given the already large loan book exposure. It is now focusing on lower risk, shorter term loans at UnionDigital, as well as payroll and credit card loans, but the improvement in credit costs have been slow to come through.
The bank however benefits from good shareholder support; it successfully completed a third stock rights offering of PHP 10 bn in 2Q24 (2023: PHP 12 bn; 2022: PHP 40 bn) to shore up capital. Lower opex from 2Q24 onwards is also aiding the bottomline.
Key Metric
AS OF 11 Mar 2025| PHP mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.50% | 4.60% | 4.80% | 5.50% | 6.00% |
| Reported ROA (Cumulative) | 1.5% | 1.6% | 1.3% | 0.8% | 1.1% |
| Reported ROE (Cumulative) | 11.5% | 11.5% | 9.7% | 5.6% | 6.4% |
| PPP ROA | 2.68% | 2.59% | 2.17% | 2.31% | 3.08% |
| CET1 Ratio | 15.0% | 16.3% | 11.3% | 13.9% | 15.6% |
| Total Equity/Total Assets | 13.6% | 13.5% | 13.6% | 15.3% | 17.1% |
| Gross NPL Ratio | 5.10% | 5.00% | 4.80% | 6.27% | 6.89% |
| Net LDR | 64.3% | 63.1% | 67.4% | 73.8% | 77.3% |
| Liquidity Coverage Ratio | 207% | 272% | 148% | 163% | 250% |
| Net Stable Funding Ratio | 133% | 149% | 124% | 124% | 128% |
CreditSight View Comment
AS OF 13 Mar 2025UBP’s NIM and core revenue generation is strong thanks to its pivot towards higher yielding retail via organic growth and acquiring Citi’s local retail portfolio. However, returns have suffered as the asset quality repercussions which we have forewarned from its aggressive growth pace and riskier retail focus have come through, with elevated credit costs since 2H23. It has slowed loan growth but credit costs have not shown signs of stabilisation. The reserve cover is maintained relatively thin. Continued shareholder support with yet another stock rights offering in 2Q24 has ensured sufficient capital for now. Still, we maintain U/P as it trades tight for its size and risk, given its asset quality issues and weak fundamentals.
Recommendation Reviewed: March 13, 2025
Recommendation Changed: April 17, 2020
Who We Recommend
International Container Terminal Services Inc
BDO Unibank
Woori Financial Group