SM Investments: profit up 5.8% but revenue growth slowed to 2.8% – the gain rests on margin, not on turnover

SM Investments reported third-quarter 2026 results: revenue of PHP 167,569 mn, operating profit of PHP 40,390 mn and net profit of PHP 31,736 mn. Year on year revenue added 2.8% and net profit 5.8%, while top-line growth slowed from 7.5% in the second quarter to 2.8% in the third. Net margin nevertheless rose to 18.9% from 18.4% a year earlier, and it was the margin, not sales volume, that carried profit. Our conclusion: fairly valued – on the portal's model the upside to fair value is +8%. Our view: the share is fairly valued; upside on the portal model +8%.

Our view: is there upside

Our view in numbers

Key takeaways

— Revenue added 2.8% year on year, but after 7.5% in the second quarter that is a marked slowdown

— Net profit rose 5.8% on revenue growth of 2.8% – the gap was closed by margin, which rose to 18.9% from 18.4%

— Operating profit of PHP 40,390 mn on revenue of PHP 167,569 mn implies an operating margin of about 24.1%

— Leverage of 2.13x net debt to trailing-twelve-month EBITDA is moderate for a company with net profit of PHP 129,077 mn

— The share trades at 5.23x trailing-twelve-month earnings and 5.82x EBITDA – the market is not pricing in an acceleration

— Trailing-twelve-month dividend yield of 3.03% is a modest addition to return, not the main argument

— On the portal's model the upside to fair value is +8% – there is a cushion, but a small one

Key figures, PHP bn

Revenue added 2.8% year on year, but after 7.5% in the second quarter that is a marked slowdown

In the third quarter of 2026 revenue came to PHP 167,569 mn, up 2.8% on a year earlier. That is continued growth, but at a markedly slower pace: revenue added 7.5% in the second quarter and 4.9% in the first. The slowdown came after a quarter with revenue of PHP 179,781 mn in the second quarter, so the third quarter was also weaker than the previous one in absolute terms.

For a company of this scale 2.8% is growth slightly above inflation, but no more. Third-quarter turnover of PHP 167,569 mn is below the PHP 199,450 mn of the fourth quarter of 2025, though the comparison with the fourth quarter is distorted by seasonality. What matters more is that the year-on-year slowdown from 7.5% to 2.8% shows the second quarter's momentum did not hold.

What exactly braked revenue is not evident from the available data. All that is clear is that growth remains positive and the company is not losing turnover, but the pace is no longer what it was a quarter earlier. For an investor this is a signal to watch the next report: if 2.8% proves the new level rather than a one-off dip, the whole profit construction will rest on margin.

Net profit rose 5.8% on revenue growth of 2.8% – the gap was closed by margin, which rose to 18.9% from 18.4%

Net profit for the third quarter of 2026 was PHP 31,736 mn, 5.8% more than a year earlier. Revenue over the same period grew only 2.8%, so the entire outperformance of profit came from profitability, not turnover. Net margin rose to 18.9% from 18.4% a year earlier – an increase of 0.5 percentage points.

The arithmetic is simple: with revenue of PHP 167,569 mn and a margin of 18.9%, profit of PHP 31,736 mn means the company kept more of each peso of sales than a year ago. That may reflect lower costs, a change in the sales mix or one-off items, but the specific source is not known from the available data. What matters is that margin is growing no less than revenue.

The durability of this shift is the key question. If 18.9% is a new level, profit can grow faster than revenue even on weak turnover. If it is a one-off effect, then with revenue growth slowing to 2.8% next quarter's profit could come under pressure. For now, margin is the main source of profit growth.

Operating profit of PHP 40,390 mn on revenue of PHP 167,569 mn implies an operating margin of about 24.1%

Operating profit for the third quarter of 2026 was PHP 40,390 mn. On revenue of PHP 167,569 mn that is about 24.1% – nearly a quarter of turnover is converted into operating profit before financial and other items. For comparison, in the second quarter operating profit was PHP 42,168 mn on revenue of PHP 179,781 mn, or about 23.5%.

Operating margin in the third quarter was slightly higher than in the second, even though revenue was lower. This confirms the company is working on costs: with turnover down PHP 12,212 mn, operating profit fell only PHP 1,778 mn. In other words, the company managed to hold profitability on lower sales volume.

This dynamic matters for the durability of profit. If operating margin holds near 24%, then even modest revenue growth will lift profit. But if revenue growth keeps slowing while costs start to rise, that buffer could disappear. For now, operating efficiency is the strong side of the report.

Leverage of 2.13x net debt to trailing-twelve-month EBITDA is moderate for a company with net profit of PHP 129,077 mn

Net debt at the latest annual balance-sheet date was PHP 389,389 mn. Against trailing-twelve-month EBITDA of PHP 182,945.6 mn that gives a net debt to EBITDA ratio of 2.13. Such a debt level for a company with net profit of PHP 129,077.1 mn over the last twelve months and revenue of PHP 706,200 mn looks moderate: debt is covered by EBITDA in a little over two years.

It is important that this is a level, not a trend: there is no prior value in the data, so it cannot be said that leverage rose or fell. All that can be stated is that 2.13 is not a level that creates a risk to financial stability. The company generates enough profit to service its debt.

For an investor this means the debt factor is not the main one in valuing the share right now. With a market capitalisation of PHP 674,725.8 mn, net debt of PHP 389,389 mn adds about 58% to it – significant, but not critical. Attention should focus on operating performance, not debt.

The share trades at 5.23x trailing-twelve-month earnings and 5.82x EBITDA – the market is not pricing in an acceleration

On multiples SM Investments looks inexpensive: trailing-twelve-month P/E of 5.23 and EV/EBITDA of 5.82. A return on equity of 12.85% at such a valuation means the market values the company below the book value of its equity. For a stable business with profit of PHP 129,077.1 mn over the last twelve months, that is a modest valuation.

The current multiple cannot be compared with its own three-year history from the available data – no such values are in the facts. But the level of 5.23x P/E itself says the market expects neither an acceleration in growth nor an expansion of margin. If profit keeps growing at 5.8% a year, such a multiple leaves room for re-rating.

A low multiple is not a guarantee of growth, however. The market may value the company cheaply because of the slowdown in revenue to 2.8% and uncertainty over the durability of margin. The question is whether the current price reflects those risks or overstates them. On the portal's model the +8% upside suggests the market is close to fair value.

Trailing-twelve-month dividend yield of 3.03% is a modest addition to return, not the main argument

The trailing-twelve-month dividend yield of SM Investments is 3.03%. That is lower than one might expect from a company with a P/E of 5.23: at such a valuation profit would allow more. But the specific payout and payout ratio do not follow from the available data, so the durability of the dividend cannot be assessed.

A yield of 3.03% is an addition to total return, but not a level that by itself makes the share attractive. For comparison: with net profit of PHP 129,077.1 mn over the last twelve months and a market capitalisation of PHP 674,725.8 mn, the earnings yield is about 19.1%, meaning the company earns considerably more than it pays out.

What could reduce the payout is lower profit or higher capital spending, but there is no specific data on that in the report. The dividend here is a pleasant addition rather than the main argument for the share. The main question is the durability of profit and margin.

On the portal's model the upside to fair value is +8% – there is a cushion, but a small one

Our fundamental valuation model, built on EBITDA growth and a target multiple, gives an upside to fair value of +8% from the current price. This is not a market consensus or a target price, but the output of our own model. Such a cushion means the share is valued close to fair value, with a slight tilt towards upside.

The model rests on EBITDA growth, and in recent quarters EBITDA has grown along with profit. However, the slowdown in revenue to 2.8% is a risk for the model: if EBITDA growth slows, the upside could shrink. At the same time, multiples of 5.23x P/E and 5.82x EV/EBITDA already price in modest expectations, which limits the downside.

The share is held in our live model strategies on the portal (PH FVC, quality), but that is a fact of membership, not an argument for the verdict. A decision on the share must rest on valuation, not on inclusion in a strategy. With +8% upside and moderate leverage, the share looks balanced.

Valuation on the latest reported figures

Bottom line

The strong side of the report is margin: net profitability rose to 18.9% from 18.4%, and that let profit add 5.8% on revenue growth of only 2.8%. Operating efficiency is also solid: with revenue down PHP 12,212 mn, operating profit fell only PHP 1,778 mn. The weak side is the slowdown in turnover: after 7.5% in the second quarter revenue growth was 2.8%, and that is the main question for a holder. Leverage of 2.13x and a dividend yield of 3.03% create neither risk nor an additional argument. Our conclusion: fairly valued – on the portal's model the upside is +8%. Our view: the share is fairly valued; upside on the portal model +8%.