Outlier

By Mark T. Amoguis
Senior Researcher

INVESTORS bought Megaworld Corp. shares last week given the company’s attractive growth prospects amid its aggressive expansion plans and its insulation from the moratorium on the economic zone development in Metro Manila that would put Information Technology and Business Process Management (IT-BPM) projects on hold.

A total of 94.574 million Megaworld shares worth P571.458 million were traded during the June 24-28 period, data from the Philippine Stock Exchange showed.

Shares in the property arm of tycoon Andrew L. Tan closed at P6.10 apiece, inching up by 0.5% from the P6.07 finish last June 21.

Megaworld’s share price has gone up by 27.1% since the start of the year.

For RCBC Securities, Inc. Equity Analyst Jeffrey Lucero, Megaworld’s attractiveness is underscored by its insulation from the moratorium on new ecozones in Metro Manila, which is seen delaying IT-BPM firms’ expansion plans.

“The moratorium on new Metro Manila ecozones was on the news [last] week. MEG (ticker symbol of Megaworld) is not negatively impacted by this news since most of the office space in their 2019 to 2020 pipeline which are not yet PEZA- (Philippine Economic Zone Authority) accredited will rise in the POGO (Philippine offshore gaming operator)-packed Bay Area,” Mr. Lucero said in an e-mail interview last Friday.

“Even if they don’t get PEZA accreditation for those, they can just lease out the space to POGOs (rather than to BPOs who usually locate in ecozones to avail of ecozone incentives). On the other hand, the moratorium would cut upcoming supply of PEZA-accredited office space, this could then benefit MEG’s existing PEZA-accredited offices. Most of MEG’s office space in Metro Manila are PEZA-accredited,” he added.

Last Tuesday, PEZA said it will ask Malacañang to provide a longer transition period of at least six months instead of 30 days for the completion of requirements of applications for ecozone developments in Metro Manila that are awaiting presidential green light.

Some 153 information technology (IT) centers and 10 IT parks are expected to be affected by the current processing period.

Of these, 22 have been endorsed to President Rodrigo R. Duterte and 131 approved by the PEZA board but not elevated to the Office of the President. PEZA approvals for Metro Manila only cover IT-related enterprises.

To recall, Administrative Order No. 18, which was issued last June 17, set a moratorium on the processing of applications for ecozones in Metro Manila. However, It did not provide guidelines for how the applications will move forward.

Applicants that fail to submit all requirements to beat the July 22 deadline will not be rejected but will be shelved temporarily, PEZA Director-General Charito B. Plaza was quoted in news reports as saying.

For his part, COL Financial Group, Inc. Senior Research Manager Richard G. Lañeda said Megaworld will continue to aggressively expand its leasable retail and office space, citing the company’s plans to complete a total of 633,000 square meters (sq.m.) of leasing space starting this year until 2021.

“We are raising our fair value estimate on MEG from P5.84 to P7.20 after raising our valuation estimate for MEG’s investment properties and landbank. We factored in recently completed office and retail buildings and also raised our EBITDA (earnings before interest, tax, depreciation, and amortization) margin assumption for investment properties. Meanwhile, we raised our landbank value estimate to better reflect the increase in market prices of land in the past two years,” Mr. Lañeda cited COL’s report on Megaworld dated June 26.

“Given that EBITDA margins have consistently held above our conservative long-term assumption, we are raising our EBITDA margin forecast to 88.3%,” he said.

Megaworld commits to spend P300 million over the next five years — or until 2024 — to expand its residential, office, retails, and hotel projects. This year alone, it planned to spend P65 billion for its expansion.

Broken down, around 65% or roughly 195 billion of the five-year capital expenditures will be earmarked for the development of residential projects and investment properties, while 35% will be used for land acquisitions.

Last year, the company posted a net income attributable to the parent of P15.219 billion, an increase of 15.8% from P13.707 billion in 2017.

In the first quarter of 2019, Megaworld managed to grow its attributable net profit by 16.3% to P3.836 billion.

COL’s Mr. Lañeda expects Megaworld to net P17.736 billion this year. He pegged its support and resistance levels for this week’s trading at P5.90 and P6.17, respectively.

Meanwhile, RCBC’s Mr. Lucero has a P16.8-billion core net income forecast for Megaworld this year on “broad-based growth.”

“[T]he residential business growth will be buoyed by sustained high amount of residential launches. Their residential inventory remains less than one year worth of sales. On the other hand, MEG expects to add at least 200,000 square meters of office and mall leasing space this year, which, coupled with assumed better occupancy for the space added last year, will allow for strong growth in rental income,” he said.

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