An Update on San Miguel’s Minsky Model (1H 2019)
Here’s an update of SMC’s financial conditions as of the 2Q and 1H. I have written on numerous occasions that SMC’s business model reflects on Hyman Minsky’s Financial Stability Hypothesis.
San Miguel’s gross sales barely grew in the 1H 2019; it was up by 2% to Php 509.5 million from Php 499 million a year ago. 2Q Gross sales shrank by 2.3% to Php 258.71 billion from 2018's Php 264.7 billion, dragging lower first semester sales.
A decline in profit margins have accompanied the drop in SMC’s sales. 2Q and 1H profit margins slumped to its lowest level in 5 years. Since peaking in 2016, SMC’s profit margins have turned south.
Partly because of this, 1H 2019 net income slumped 5.19% to Php 26.152 billion from Php 27.6 billion. Despite the drop in sales and profit margin, 2Q net income jumped 11.3% to Php 13.33 billion from Php 11.976 billion primarily from forex gains of Php 3.7 billion, perhaps bankrolled by the pesos’ rebound.
SMC’s total debt eased marginally by .46% to Php 798 billion in the 1H of 2019. In the same period a year ago, SMC acquired a record Php 252.284 billion of debt that exploded the firm’s aggregate debt to an unprecedented Php 801.64 billion!
[See San Miguel’s 1Q Debt Rocketed to the Moon with Php 172 Billion Growth! In 2017, PSE 30 Borrowed Php 10 for every Peso of Income Growth! May 14, 2018]
In the 1H 2019, SMC’s interest payments leaped 39.7% to Php 28.17 billion, almost triple the rate of 2018 at 10.74%! Naturally, that massive buildup in debt doesn’t come for free.
While it may be true that SMC’s interest coverage ratio (ICR) for the moment is still at 2.38, a supposedly safe number, this represents the second-lowest level in eight years after 2013.
But that’s a mirage attributable to the material decline in interest rates.
However, stagnating sales, falling margins, rising debt liabilities, magnified interest rate, currency, liquidity and economic risks can easily collapse SMC’s ICR similar to 2013.
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