1Q15 earnings up 10.50% but miss estimates. MEG reported a net income of Php2.26 Bil
for 1Q15. This is 14.7% lower than the reported income of 1Q14. Nevertheless, excluding
the Php604 Mil one-off gain in 1Q14, core income is up 10.5% y/y. Performance of MEG in
1Q15 missed COL and consensus estimates as it accounted for just 19.9% and 20.4% of COL
and consensus estimates respectively. Earnings missed on higher than expected operating
expenses. Opex grew 33.4% y/y and amounted to 29% of our full-year estimates.
Revenues in line with estimates. Real estate revenues grew 14.4% and realized gross profit
improved 21.4% as MEG completed more projects in 1Q15. Realized gross profit in 1Q15
accounted for 22.1% of our full year estimates, higher than the 20% average for the past two
years. Rental revenues were also in line with expectations, totaling Php1.99 Bil or 24.5% of our
full year estimates.
Operating expenses remain elevated. Operating expenses in 1Q15 surged 33.4% to Php1.99
Bil. This accounted for 29% of our full-year estimates. Recall that in FY14, MEG also missed
estimates due its high operating expenses. Part of the increase in operating expenses is due
to the consolidation of GERI which started in 4Q14. However, based on the quarterly average
operating expenses of GERI, only around 27% of the increase was due GERI’s consolidation
thus a large part of the increase was organic.
Estimates to be reviewed. We will be reviewing our income forecast in light of the elevated
level of operating expenses. Our rating is a BUY with a fair value estimate of Php5.86. We
believe MEG is still an attractive value play with extensive landbank in attractive locations.
MEG’s growing portfolio of office buildings and retail centers is also a strong selling point as it
improves revenue and earning visibility of MEG.
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