THE CRACKDOWN on Philippine offshore gaming operators (POGOs) by both Philippine and Chinese governments, coupled with the outbreak of the new coronavirus disease 2019 (COVID-19), led investors to sell their shares in Megaworld Corp.

A total of 179.28 million Megaworld shares worth P622.92 million were traded last week, data from the Philippine Stock Exchange showed.

Megaworld shares closed at P3.40 apiece on Friday, down 10.5% from P3.8 a week ago. Year to date, the stock’s share price is down 13.3%.

“Being the largest office leasing company in the Philippines [with almost two million square meters (sq.m.) of leasable area)], investors fear that Megaworld’s earnings and occupancy figures may take a hit from the lesser influx of POGO firms and employees due to the coronavirus outbreak and current crackdown of the Philippine and Chinese government on the POGO industry…,” Mandarin Securities Corp. Research Analyst Zoren Philip A. Musngi said in an e-mail.

According to him, Megaworld’s fundamentals “are currently tilting to the bearish/negative side” because most of their businesses — which include residential, office and mall spaces — will likely be hit by the COVID-19 fears and POGO industry crackdown.

“However, one upside we see from the stock is that the impact of the POGO crackdown may be less severe than investors expect, considering that most POGO tenants pay out their rents in advance for one to two years (according to industry executives) and that most of the crackdown are on illegal Chinese workers and POGOs not paying taxes,” Mr. Musngi added.

In a phone interview, AP Securities, Inc. Senior Research Analyst Rachelle C. Cruz noted other listed firms connected to POGOs were affected, but that the price movement was “magnified” for Megaworld as “most of its projects are leasing office spaces for POGOs.”

Although Megaworld’s exposure to POGO is about four percent of its pre-tax earnings, Ms. Cruz said the potential flight of POGOs in the country could lead to lower lease rate and future selling prices of condominiums.

According to Leechiu Property Consultants, POGOs cornered the largest office stock at 738,000 sq.m. or 44% of the total office space supply in 2019. This was 67% more than the sector’s 443,000-sq.m. net take-up in 2018. The POGO industry is largely powered by Chinese employees.

Moreover, the Chinese embassy, on its Facebook page last Feb. 23 clarified earlier reports that the Ministry of Public Security of China has canceled the passports of thousands of suspected Chinese nationals working in POGOs.

It did not confirm whether China has canceled the passports or deported some of its citizens, but noted the said ministry holds a list of Chinese nationals suspected of committing long-term “telecommunication fraud crimes” in different countries “who are classified as the persons prohibited from exiting China.”

The embassy said that the Chinese and Philippine authorities are working closely to combat crimes that include telecommunications fraud, illegal online-gambling, money-laundering, illegal employment, and kidnapping, among others.

Meanwhile, a suspension of POGOs has been recommended by a Senate panel over tax issues. In a hearing at the Senate Committee on Labor, Employment and Human Resources Development on Feb. 11, the Bureau of Internal Revenue said around P50 billion is lost for POGO’s failure to pay corporate tax and franchise tax, among others.

Megaworld’s attributable net income stood at P12.8 billion in the nine months to September 2019, up 13.9% from the P11.24 billion in the same period in 2018.

Mandarin Securities’ Mr. Musngi expects Megaworld’s fourth-quarter net earnings to be around P4.4 billion, driven by “sustained growth” across the firm’s residential, office, and malls businesses.

“The hit to profitability will likely come in succeeding quarters, considering that its competitor Ayala Land already signaled that [first-quarter 2020] earnings is weaker due to lesser foot traffic and occupancy in their malls and hotels,” he said.

AP Securities’ Ms. Cruz expects Megaworld’s net income to hit P17.4 billion for 2019.

For the week, analysts said Megaworld’s announcement on its P5-billion share buyback program last Friday would have an upside impact on its share price.

“We expect the price to bounce by [this week] and may reach around the P3.60-per-share level, especially after the company recently announced a P5 billion share buyback program,” said Mandarin’s Mr. Musngi.

He placed the stock’s support level at P3.30, while resistance levels “will likely be in the P3.70 and P4.00 levels.”

For AP Securities’ Ms. Cruz: “The [buyback program] will support the stock’s price [this week]. We might not see a sharp decrease compared to what was seen in the earlier part of [last] week.” — Carmina Angelica V. Olano