Update on Megaworld
Last week, Wall Street continued to behave as before, dragging down most global equity markets lower than the week before.
While the local market was not particularly affected as it was the week before, it seems that it may inevitably move in line with the general trend.
Variables that had influenced the local market in the past are starting to reappear. Thus, the local market may move from sideways to lower in the next two weeks.
Property sector
Analysts appear to be divided on the prospects of the property sector. Some now feel that its future is getting a little shaky. This was due to the observed failure of a number of construction projects to get satisfactory customer response even after intensive pre-selling support.
Now close to completion, a large portion of their sellable spaces remain unoccupied, much less sold, they claim.
But an equal number disagree. They insist that those observed cases are isolated and that this opinion lacked empirical evidence needed to support a general conclusion on the condition of the property sector.
One company that could probably withstand negative views on future prospects of the property sector is Megaworld Corp. (MEG).
According to the property firm, “MEG is primarily engaged in the development in Metro Manila of large-scale mixed-use planned communities or townships that integrate residential, commercial, educational, leisure and entertainment components.
“Its real estate portfolio includes residential condominium units, subdivision lots and townhouses, as well as office projects and retail space,” it added.
“Its more high-profile property development projects include Eastwood City, Forbes Town Center, McKinley Hill, Newport City, Manhattan Garden City, Cityplace, Bonifacio Uptown and McKinley West.”
MEG’s subsidiaries include Megaworld Land Inc., Richmonde Hotel Group International Ltd., Prestige Hotels and Resorts Inc., Eastwood Cyber One Corp. and Forbes Town Properties and Holdings Inc.
“The company has numerous associates, namely the Empire East Land Holdings Inc., Suntrust Home Developers Inc., Palm Tree Holdings and Development Corp., Gilmore Property Marketing Associates Inc., Alliance Global Properties Ltd. and Travellers International Hotel Group Inc.”
In the first half of the year, MEG’s net income grew by about 69.6 percent at P15.75 billion compared with the P9.29 billion reported during the same period last year.
This resulted in a P5.16 billion net income, which is 130 percent higher than that of the same period last year. The first-half income amounted to about P0.205 per share as compared to the P0.088 of the same period in 2010.
MEG’s strong performance in the first half of the year was made possible by its continued healthy financial state. As of end-June 2011, MEG’s current ratio (current assets over current liabilities) stood at 2.95 to 1 while quick ratio (cash plus cash equivalents over current liabilities) held at 1.33 to 1.
Debt leverage
These figures may be slightly lower than MEG’s financial condition for the same period in 2010 (3.29 to 1 and 1.59 to 1, respectively). However, this could be explained by the increase in MEG’s debt-to-equity ratio (interest-bearing loans and borrowings and bonds payable over equity attributable to parent company) that amounted to 0.41 compared to 0.32 in the same period of 2010.
The increase in MEG’s debt leverage worked to its advantage. It not only allowed MEG to complete and deliver its projects in time, bolstering revenue, but also enhanced the company’s profitability.
This is supported by MEG’s improved return on assets (net income over total assets) and return on equity (net income over equity) for the period.
Return on assets increased to 3.97 percent while return on equity also increased to 8.63 percent as compared to 2.47 percent and 4.29 percent respectively, in the same period of 2010.
Incidentally, MEG’s new financial structure made possible the payment of cash dividend equivalent to the aggregate amount of P598,294,617 last July 29 (the dividend was declared last June 16, and made applicable to stockholders of record on July 6).
Bottom-line spin
As of last Friday, MEG closed at P1.90 per share. This was down by 3.6 percent from the previous day’s close of P1.97, reflecting MEG’s share price slide in the last 30 days.
In the last 52 weeks, MEG recorded a share price low of P1.80 and a high of P2.84.
MEG continues to be a consistent market favorite to both local and foreign traders and investors due to its comparatively good daily market volume made possible by its high free float of 41 percent.
According to management, MEG’s future prospects remain good as “there were no seasonal aspects that had any material effect on the financial condition or financial performance of the Group [MEG]. The Group is not aware of events that will cause material change in the relationship between costs and revenues.”
Nonetheless, because the bulk of MEG’s revenue at present still “came from the sale of condominium units and residential lots,” it may not be reasonable to expect that MEG will experience the same rate of growth in the second half of the year.
MEG’s biggest customers are overseas workers’ families. Breaking global economic developments may restrain sales in this market, limiting overall revenue and net income for the year to only about 20 percent. Therefore, MEG may likely have an overall net income of P6.192 billion, or a P0.247 per share earnings, for 2011.
In this case, MEG still remains a strong “BUY.” With its closing price of P1.90 a share last Friday, which was only about 6 percent shy of its recorded 52-week low of P1.80, MEG was trading at a very low price/earnings ratio (PER) of 7.69 times based on its estimated 2011 overall earnings. This means that MEG’s closing price last Friday was about 82 percent lower than the industry’s present estimated P/E multiple of about 14 times.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach Market Rider at [email protected] or directly at www.kapitaltek.com.)
