- Megaworld Corp., the Philippines builder controlled by billionaire Andrew Tan, plans to spend at least $5 billion in the next decade to develop properties for the nation’s expanding outsource-services industry.
The Southeast Asian
country’s top office supplier for companies from Accenture Plc. to
Convergys Corp. will develop 10 townships dedicated to business-process
outsourcing (BPO), tapping into demand that’s “barely scratched the
surface,” said Jericho Go, a first vice president at Megaworld.
Revenue at BPO
companies in the Philippines may climb 61 percent to $25 billion in the
next three years, accounting for 10 percent of the global industry,
according to the country’s Information Technology and Business Process
Association of the Philippines (Ibpap). Megaworld shares have surged
more than elevenfold since 1999, outpacing a 212-percent gain in the
Philippine Stock Exchange index (PSEi), as Tan’s strategy to create
self-contained communities around call centers and other outsourcing
operations propelled earnings. The company is still valued at a
22-percent discount to the benchmark equity index.
“The Philippines is
among the most competitive destinations for BPOs,” Go said in a phone
interview on Thursday from Cebu. “There are many US and European
companies that are seriously considering setting up here.”
The outsourcing
industry will employ 1.3 million Filipinos by 2016, compared with
900,000 last year, the Ibpap said. The country’s prime office rents are
the lowest in Asia, according to CB Richard Ellis, and the peso’s
9-percent drop against the dollar in the past 12 months has made
investing in the Philippines cheaper for overseas companies.
Megaworld will add
about 1.5 million square meters (16.1 million square feet) of office and
retail space in 10 years, Go said. The Manila-based company had 600,000
sq m of offices leased mostly to BPOs at the end of last year, and
170,000 sq m rented to retailers.
Rental income at
Megaworld will amount to 40 percent of total revenue this year and may
climb to 60 percent in 2017, according to Alex Pomento, an analyst at
Macquarie Group Ltd. Megaworld estimates annual rental revenue will rise
to P10 billion ($222 million) within five years and account for half of
profits, said John Hao, the company’s director for investor relations.
“Demand will continue
to be robust,” said Julius Guevara, head of research at the Philippines
unit of Colliers International Plc. “Outsourcing to the Philippines
remains attractive because of the lower costs, and the recent weakness
of the peso supports this demand.”
Slower economic growth
and a weakening property market are potential risks for shares of
Philippines developers, according to Macquarie’s Pomento. The firm has
an outperform rating on Megaworld, with a 12-month price target of
P5.10.
Land prices in some
parts of Manila have jumped 28 percent in the past three years,
according to Colliers. The Philippines central bank on Thursday ordered
lenders to set aside more money as reserves to curb liquidity.
Economists surveyed by
Bloomberg estimate Philippines growth may slow to 6.5 percent this
year, after the economy expanded 7.2 percent in 2013 and 6.8 percent in
2012, the fastest two-year pace since the 1950s.
“The risk is if the Philippines economy and the real-estate industry turn sour,” Pomento said.
Tan’s Eastwood City
township, which opened in 1999, was the first in the country to use BPO
offices as an anchor for high-density, self-contained mixed-use
developments.
Construction of
Eastwood began in 1997, when Tan turned a 17-hectare (42-acre) former
textile mill along one of Manila’s ring roads into a master-planned
community of residential towers, BPO offices and shops. There are now at
least 100,000 residents, workers and shoppers in Eastwood at any one
time, Go said.
Megaworld is
duplicating Eastwood in six other parts of Manila, and building other
developments in Lapu-Lapu, Iloilo and Davao, cities in central and
southern Philippines.
“Tan’s strategy of
building homes, offices and retail shops in a single project paid off,
and it was copied by other developers,” said Jonathan Ravelas, the chief
market strategist at BDO Unibank Inc. in Manila.
Megaworld shares have
advanced 27 percent this year, the most among major Philippines
developers, and trade at 13.2 times projected 12-month earnings. The
PSEi is valued at 16.9 times. Ayala Land Inc., the nation’s
second-largest BPO landlord, has climbed 15 percent this year and trades
at a multiple of 27, while Robinsons Land Corp. has risen 5.5 percent
and is valued at 14.5 times.
Megaworld has 10 buy
and 4 hold ratings from analysts, with an average 12-month price target
of P4.48, according to data compiled by Bloomberg.
“The stock deserves to
be re-rated,” said Steve Sevidal, chief investment officer at United
Coconut Planters Bank, which manages about $1 billion. “Megaworld has
created a solid recurring income base, which is what you want to see in a
property company, and it’s positioned very well for growth.”
