August 16, 2015

Megaworld Corp reports 9% hike in 1H15 core income

In its filing with the Exchange, Megaworld Corp reported 1H15 attributable net income of P5.26b, down 68% YoY as the 1H14 net income was boosted by P11.62b in one-off gains. Netting out the latter, net income during the semester grew 9% YoY, indicating a slight acceleration in earnings growth to 9.6% in 2Q15 from the 8% growth registered in 1Q15.

This came on the 13.6% hike in total revenues to P20.93b. Real estate sales grew 11.8% in 1H15 to P14.43b, reflecting a deceleration from the 14.4% growth in 1Q15. This was compensated however by higher rental income at P4.2b, up 22% YoY in 1H15 (+16% in 1Q14 and +28.4% in 2Q15), and higher bookings of previous year's real estate sales.

Notwithstanding the weaker real estate sales growth, residential gross margins improved sequentially from 36% in 1Q15 to 40% in 2Q15, bringing the 1H15 average to 38% (vs. 33% in 1H14). The growing proportion of the high-margin rental income also boosted the overall operating margins to 33.7% in 1H15 from 28.7% in 1H14.

Our take: MEG's results came on track with our expectations, with the 1H15 core net income accounting for 56% of our full-year 2015E estimates. MEG earned about 60% of its 2014 core income in 1H14. Overall revenues also represented half of our full-year estimates but only because of better-than-expected rental income and strong real estate sales contribution from MEG's subsidiaries.

Recall that MEG's own real estate sales fell 11% YoY in 1Q15 and it remains to be seen if this has recovered in 2Q15. We will reassess our numbers pending more details on MEG's operating results from this afternoon's briefing. – WealthSec