MAYBANK Investment Banking Group said it has reinitiated its coverage of Andrew Tan-led Megaworld Corp. with a "buy" call at a target price of P3.20 per share, based on a sum-of-the-parts valuation approach.
In a report, Maybank said Megaworld's net income could increase by 10 percent per year over the next two fiscal years — 2025 and 2026 — "driven by residential sales and mall rentals."
Analyst Raffy Mendoza of Maybank said that potential short-term catalysts, such as further policy rate cuts, could spur demand for residential purchases and continue the strong performance of Megaworld's malls.
Megaworld was said to be trading at a 0.3x FY25E (fiscal year 2025 estimate) price to book value ratio (P/BV), "well below its 10-year mean of 0.7x."
For 2025, Maybank forecasts Megaworld's core net profit to grow 9 percent year-on-year (YoY) to P19.4 billion, led by its residential sales and mall rental income.
As of mid-2024, Megaworld had launched more than 70 percent of its project developments catering to upper-middle to high-end income clients, and Maybank said the ratio should hold for the rest of the year.
It noted that Megaworld had a healthy pipeline of over 150,000 square meters (sqm) of mall gross leasable area (GLA) in the next two years, adding to its current mall GLA of 517,200 sqm.
"We expect its mall occupancy rate to be healthy at 90 percent in FY 2025 due to strong domestic consumption," Maybank added.
Megaworld's residential segment, meanwhile, contributed the largest revenue for the company, contributing 68 percent of its revenue, the report continued.
"For FY 2024, we expect reservation sales to decline by 12 percent YoY to P72.3 billion and project launches of P32 billion by taking management's full-year guidance into consideration," Maybank said, and that that for 2025 and 2026, launches would be within 2024 levels.
With regard to Megaworld's office segment, Maybank said it was "cognizant of the company's declining occupancy rate since FY 2022's 92 percent" to 87 percent as of the first half of 2024.
It attributed the decline to headwinds faced by the office sector in recent years, including the rightsizing of some information technology-business processing outsourcing and the government's recent push to ban Philippine offshore gaming operators by the end of 2024.
Last June, Megaworld inaugurated its 1,530-room Grand Westside Hotel in Paranaque City, touted as the biggest hotel in the country in terms of capacity. The company is also set to open the 554-room Chancellor Hotel Boracay within the year.
This segment, according to Maybank, will be "largely benefiting from the recovery of tourist arrivals, and the growing demand for meetings, incentives, conferences and exhibitions activities."
The Department of Tourism estimates tourist arrivals to reach 7.7 million by end-2024.
Megaworld reported consolidated revenues of P36.6 billion for the first half, up 24 percent from a year earlier, led by hotels (up 38 percent), the residential segment (up 30 percent), and mall rentals (up 19 percent).
The company's shares closed at P2.18 apiece on Friday.
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