Stock Commentary

Megaworld Q2 profit up 39%

Merkado Barkada
Again, for the diversified conglomerates, I think that it is not instructive to compare current Q2/1H performance for 2021 against the Q2/1H performance of last year.
Merkado Barkada

Megaworld [MEG 2.71 3.21%] posted a Q2/21 profit of P2.6 billion, up 39% from Q2/20 profit of P1.9 billion, and up 20% from Q1/21 profit of P2.2 billion.

MEG blamed its 1H under-performance on COVID, but did not elaborate on how the 2021 blend of lockdowns and the overall market environment made it more difficult to make money than the 2020 blend and its associated environment. On a first half of the year basis, MEG reported that real estate sales were down 5%, commercial leasing was down 13%, and that hotel operations were down 21% in Q2 y/y. MEG also reported that its contract liabilities were up over 17% for the period, due to the company collecting payments for projects that had not yet been constructed to the point that would allow MEG to book the payments as revenue.

Another interesting point was MEG’s April transfer of P9.8 billion worth (at MEG’s carrying value) of property into its REIT, MREIT, in a property-for-stock swap. MEG received 1,282,120,381 shares of MREIT for the property, an implied per-share value of P7.18/share. That’s approximately the number of shares of MREIT that MEG will sell to the public next month for P26 billion.


Again, for the diversified conglomerates, I think that it is not instructive to compare current Q2/1H performance for 2021 against the Q2/1H performance of last year. Of course MEG is doing better than when it was forced to shut down all its gaming properties, malls, and condo sales centers. But whether MEG beat its Q2/20 number by 39%, or 50%, or 20%... kind of tells us nothing.

What if we compared MEG to Q2 and 1H in 2019, back when MEG (like every other conglo) was basically just in balls-to-the-walls expansion mode, at full stride, operating without any cares in the world (other than how to get more money out of us)? Well, in Q2/19, MEG had a net income of P3.8 billion, and for the first half of 2019, made over P8.3 billion in profit. That means when we compare MEG’s recent performance on a year-on-year basis with 2019, its Q2 profit is actually down 31%, and its 1H profit is actually down 40%.

This is a trend that I’ve seen pretty much across the board, from Metrobank [MBT 45.80 0.33%] to Ayala Land [ALI 32.50 2.40%]. There are some exceptions, of course, but the takeaway here is that while the trend is up and things are improving, the truth is that our blue chip corporations have a huge mountain to climb to get back to the profitability levels they enjoyed two years ago. Slipping back into the strictest level of lockdown next week just doesn’t bode well for a quick recovery. At this pace, it’s 2023 (maybe) before we start to see 2019 numbers again (assuming, of course, that we are never forced to lockdown again). That’s sobering.



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