FREE Stock in Focus: MEG (16 July 2018) by Unicapital Securities

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Summary of Broker’s Recommendation
Unicapital Securities BUY 5.69 16 July 2018


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Stock Rankings: All Stocks

Our Partner Broker’s Recommendation

We maintain our BUY rating on Megaworld Properties (MEG). While the choice of funding instrument below could have been better, we believe MEG can still optimize the use of its resources. Our Target Price for MEG is PHP 5.69 per share.


Our Partner Broker’s Detailed Analysis

Efficiency ratios show mixed results

Our Dupont analysis reveals a drop in calculated Return on Equity (ROE) while Return on Assets (ROA) improve, based on annualized 1Q 2018 figures. The decrease in the overall net profit margin in 1Q 2018 due to the foreign exchange re-measurement of dollar bonds caused most of the drop in ROE, while their asset turnover slightly improved with more residential units sold in Luzon.

The US$-denominated bonds account for 30% of total debt and are not hedged, this exposes MEG to the depreciating peso and will likely persist for the rest of the year. Nonetheless, we have already incorporated any potential increase in our forecast and need not revise our projections.


Perpetual bonds issued in April

Of the US$450 Million bonds as of 1Q 2018, US$200 Million of it matured in April and was essentially converted into perpetual bonds with a coupon rate of 5.375%. While its oversubscription shows the market’s confidence in MEG, it continues to expose the latter to forex risk. Nevertheless, the fixed rate is an advantage when interest rates are on the rise.


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Unicapital Securities
Unicapital Securities

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