[Vantage Point] Why SM Investments is quietly pruning its portfolio

2026-03-17 - 04:14

Strategy in the scale of SM Investments Corporation (SMIC) does not reflect the products and services a conglomerate buys but through the ones it quietly lets go. The logic is evident in SMIC’s plan to exit its roughly 30.4% stake in Atlas Consolidated Mining & Development Corporation and later its 18% investment in YCO Global Cloud Centers. Management explains the decision simply: These assets no longer align with the core business, and current market conditions offer a good opportunity to sell. But a deeper explanation is not rhetoric, it’s arithmetic. SM Investments ended 2025 with a consolidated net income of P90.5 billion, which increased 10% year-on-year, on about P681 billion in annualized earnings. In that earnings structure, almost 49% of profit now derives from banking, primarily through BDO Unibank and China Banking Corporation. Property, which is dominated by SM Prime Holdings, brings around 27%, and retail operations provide around 18%. Only 6% — P5.4 billion — comes from portfolio investments, a basket that contains Atlas and a few minority initiatives. Seen through that lens, Atlas is bordering on financial irrelevance. Even under optimistic assumptions, SMIC’s slice of Atlas earnings would be a fraction of the conglomerate’s P5-billion portfolio-investment segment, and well underneath 1% of consolidated profit. In practice, the share has been less. In 2025, while still in a loss position, Atlas reported a revenue of P16.5 billion, figures which barely compared to SMIC’s P681-billion revenue base. With an annual profit of P90 billion, SMIC cannot afford wasting its attention on assets that don’t register for much of their earnings. Cyclical commodity business But the dangers of those assets can be disproportionately high. Mining is one of the most cyclical sectors in the world economy. The commodity producers operate within the context of market conditions which are affected heavily by volatility of metal prices, movements in foreign exchange, operations interruptions and geological speculation. Copper demand could surge as a result of electrification and renewable energy infrastructure, but mining earnings are almost always in constant flow with such a narrative. That volatility is nothing like the businesses that underpin SMIC’s portfolio. Banking generates recurring interest income through growing loan books. Land yields reliable rental flows from malls, offices, and residential projects. Retail captures the consumer activity passing through those spaces. Mining, by contrast, creates a variable associated with cycle patterns of commodities, not domestic consumption. The mismatch is visible from a balance sheet perspective. A cyclical commodity business embedded in a consumer-finance ecosystem increases volatility but cannot add true scale. Predictable earnings command a premium from investors. Small volatile assets in a vast earnings base can undermine that stability narrative without materially boosting growth. Atlas is not a trivial mining operation in itself. Via its subsidiary Carmen Copper Corporation, it manages one of the Philippines’ largest copper mines, based in Cebu, and exports to China are concentrated toward smelters. The macro case for copper in the long term continues to be compelling as electrification and energy-transition technologies drive global demand. However, the disparity between the market narrative for a commodity and corporate profitability is rarely far apart. Even during good price cycles, operational facts can weigh on returns. By SMIC’s yardstick, the strategic calculus is also simple: If one asset does not add much to consolidated earnings and instead risks exposing the group to volatility in its commodities, then selling during a market upturn is rational. And the composition of SMIC’s earnings provides a compelling reason for asset divestments, as depicted in the accompanying chart below. Banking, led by BDO Unibank and China Banking Corporation, generates nearly half of group profits, while property through SM Prime Holdings and retail operations account for most of the rest. Portfolio investments — including the group’s stake in Atlas Consolidated Mining & Development Corporation and its minority data-center venture — represent only a small fraction of earnings. This strategic move is likely driven by margin pressure resulting from high capital expenditures and a projected rise in depreciation. Banking, led by BDO Unibank and China Banking Corporation, accounts for nearly half of group profits, while the balance is largely derived from property via SM Prime Holdings and retail. Portfolio investments — such as the group’s stakes in Atlas and its minority data center business — make up only a fraction of earnings. Pruning non-core, marginal assets provides a competitive edge to a conglomerate that turns over P90 billion in annual profit, optimizing the portfolio without eroding the core earnings engine. SMIC president Frederic C. DyBuncio also quoted copper demand associated with electric vehicles and infrastructure investment as a huge incentive to sell. Gold prices have risen, again strengthening the sense that mining assets may, at present, be worth better valuation. The decision to leave the data-center venture expresses a different but equally pragmatic calculation here. 3 reinforcing engines SMIC’s 18% share in YCO Global Cloud Centers is a minority stake, giving it little control over strategy or capital allocation. While Southeast Asia is currently experiencing a data center construction boom, driven by the intense need for digital infrastructure, AI capabilities, and cloud services, the Philippine market faces a systemic obstacle: electricity costs. Data centers are electricity-intensive installations and the Philippine power price has become one of the highest in the region. As SMIC is used to producing dominant operating platforms, the presence of a passive infrastructure investment provides limited strategic leverage. Returns from a minority stake which do not offer operational control or have no structural energy advantage are increasingly unattractive. Put together, the exits of the Atlas and the data center are saying something much more important than the fate of two peripheral assets. They also delineate the economic character of SMIC itself. In the past 10 years, the Sy group has evolved into a tight-knit ecosystem structured around three reinforcing engines: banking, property and consumption. Finance offers credit and financial intermediation. Property offers the physical arenas or spaces where the business of commerce and urban life play out. Retail has captured the spending of those environments. Within that architecture, the logic of trimming peripheral investments is evident. Mining doesn’t create more power in the consumer ecosystem. A minority data-center ownership does not amplify SMIC’s control over city infrastructure or banking intermediation. Both might be interesting companies to watch, of course, but neither magnifies the economic flywheel that drives the conglomerate’s growth in earnings. Ultimately, the story is told by arithmetic. Given an asset with P16.5 billion in revenue and minimal incremental earnings contribution, SMIC generating P90.5 billion in annual profit remains unchanged. Atlas Mining and a minority data-center project might be enticing ideas, but in SMIC’s large financial network, they simply don’t make a difference. What SMIC is actually doing now is not a retreat, but a refinement. Vantage Point believes that refinement, not expansion, is often a more beneficial strategy. For any conglomerate as big or even larger than SMIC, optimizing existing portfolios to improve profitability rather than pursuing further growth generates greater value. I welcome your views on these and other issues where decisions made in power shape the country’s economic future. Below are previous Vantage Point pieces that you might have missed: [Vantage Point] The ₱90 per liter oil warning: How Gulf conflict could hit local fuel and power prices [Vantage Point] What’s wrong when Suntay stands at the crossroads of fuel, transport, and politics?