Quarterly Updates

Net income attributable to shareholders fell 33% to P2.4 billion in 1Q21, falling short of our full-year forecast, as extended quarantine restrictions impacted on performance across all areas.

However, gross profit margin increased to 47.1 percent (+104 basis points) due to a change in mix, particularly in residential (more bookings on horizontal projects), while EBITDA margin increased to 43.5 percent (+103 basis points) due to greater cost efficiency (-32 percent ).

The business maintained a robust balance sheet with a net D/E ratio of 0.27x, allowing for future growth once the economy completely recovers.

Residential

Reservation sales were P20.7 billion (+4% YoY), on pace to meet MEG’s year-end goal of P70 billion. The business launched P4.6 billion worth of projects in the third quarter (+5% YoY), out of a P17.8 billion objective for the year (+128% YoY). Additionally, the organization did not see a major shift in cancellation rates as compared to previous norms.

Real estate sales slowed (-39 percent to P5.9 billion) as a result of constrained building capacity, which impacted completion milestones. However, a sequential improvement of 2% was recorded, and this trend may continue.

Leasing

Overall rental revenue decreased by 27% to P3.1 billion, as both office (-8% to P2.6 billion) and mall rents (-64% to P0.5 billion) were weighed down by quarantine limitations, which resulted in reduced YoY occupancy (including operational occupancy) and foot traffic. However, topline growth of 40% and 2% QoQ were reported for office and malls, respectively.

The business maintained its optimism for the office sector, citing pipeline development (over 120k square meters of extra GLA by 2023–2024) and confidence in renewing expiring contracts this year (40 percent were already renewed as of end 1Q21). Additionally, MEG anticipates reaching pre-covid levels for office purchases this year (380k sqm: 305k sqm for new leases and 75k sqm for renewals).

For malls, the business anticipates a steady rebound as quarantine restrictions are removed and occupancy rates continue to hover around 85 percent on a quarterly basis. Additional 175k square meters are planned for the sector.

Hotels

Hotel revenues fell 39% year on year to P300mn (+7% QoQ), owing to resort hotels operating at a reduced capacity, balancing receipts from in-city hotels. However, the hotel pipeline will proceed as scheduled (+3,039 keys).

Impression

Using NAV, we maintain our LONG-TERM BUY at P3.85/share TP. We feel the negatives have already been priced in, given the company’s substantial 70% discount to its NAV (our target price is at a 55% discount to NAV) and 35% discount to historical P/E norms (2021E at 7x vs. 10.7x historical). Take note that MEG presently has over 4,300 acres of land and a sizable portfolio of townships and investment properties, which should enable the business to accelerate growth and profit recovery once the economy fully reopens.

Material in this article is obtained from sources we believe to be reliable, but its reliability or precision cannot be guaranteed. This is for the sole purpose of providing details and does not provide an offer from us to buy or sell securities mentioned in this document.

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