in depth analysis mwide regina

Initially, we projected Megawide Construction Company (MWIDE) to make a bottom-up profit in 2019 before the normalization of PITX improved sales in subsequent years. However the pandemic contributed to downside shocks that triggered significant estimates of changes on our part in the run-up to our 2021 estimates.

Global lockdowns and resulting neighborhood quarantines earlier this year had a significant effect on MWIDE’s airport operations company and slowed progress on some of its development contracts. MWIDE lost P465.70 million in the third quarter of 2020 (3Q20). This also weighed on its YTD tally, which touched –P917.82 million at the end of September.

The sequential rebound from the bottom of the second quarter of 2020 (2Q20) was most visible in MWIDE’s construction revenues (+140.20 per cent quarter-on-quarter q/q) and we anticipate this pattern to continue in the coming quarters as MWIDE is very optimistic in its upcoming large ticket ventures.

What’s more, the rising star of MWIDE’s ops in the middle of a surge of COVID-related doom and gloom is its landport (PITX). In its 9-Month 2020 conference call, management said that PITX’s foot traffic had returned to—and even higher than—its pre-COVID peaks. In spite of its comparatively early stages, PITX sales have risen by three figures on a y/y basis since it started operations last year—with the exception of the third quarter of 2020 (3Q20), in which MWIDE has recognized several one-time accounting changes.

Overall, demand for PITX retail and office areas is projected to improve as Metro Manila closed down several unauthorized public transit terminals during the ECQ/GCQ. PUVs would then have to travel via PITX to pick up travelers.

Management appeared optimistic that its airport activities would rebound to pre-COVID levels by the end of 21, but this may not explicitly translate into complete sales recovery.

Recommendation

Upon a downward refinement of our forecasts, our DCF valuation model created a target price of P12.70 per share. It continues to have a major upside compared to the current business conditions. As such, we affirm our recommendation to BUY.

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