Financial Adviser: 5 Things to Know About Edgar Saavedra’s Megawide Preferred Shares Offering and How to Profit from It
Infrastructure conglomerate Megawide Construction Corp (PSE:MWIDE) is raising up to P6 billion by selling up to 60 million preferred shares at P100 each this month.
The offering period of the preferred shares shall run from March 26 to April 4 with a target listing date on April 14, 2025.
What are preferred shares
Preferred shares are a special class of stocks that have features of a debt instrument because of its fixed dividend payments. It offers a steady stream of dividends, similar to interest income, regardless of the company’s earnings.
But unlike debt, preferred dividends can be suspended in case of cash flow problems. Because of these risks, preferred dividend yields are always higher than the interest rates offered by debt securities.
Preferred shares are also less volatile than common shares due to its stable returns. Pricing of preferred shares is more dependent on interest rates than its company’s growth outlook.
A rising interest rate can lower the market value of preferred shares, but if interest rate declines, the value of preferred shares could go up.
Over the first three months of the year, the median dividend yield of listed preferred shares has notably increased, moving from 6.8 percent in November last year to 6.9 percent.
At this current dividend yield, preferred stocks offer a higher return compared to the prevailing 10-year Philippine bond yield at 6.31 percent and the seven-year bond yield at 5.99 percent.
Before you invest, make sure the company is financially capable of paying its dividends on time. Just like with an IPO, review the company’s profitability and overall financial performance.
Always ask yourself: what is the probability that the company will fulfill its promise to pay dividends consistently? Can it generate enough cash flow to cover the projected dividends aside from the existing interest expenses?
Here are the five things you must know about the preferred share offering of Megawide Construction Corp and how you can profit from it:
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1| Know the structure of the offering
MWIDE is selling up to 60 million cumulative, non-voting, non-participating, non-convertible, perpetual preferred shares, the sixth in a series of preferred share issuances.
These shares will be offered in up to three subseries—Series 6A (PSE: MWP6A), Series 6B ( PSE: MWP6B), and Series 6C (PSE: MWP6C)—at an offer price of P100.00 per share.
The offering consists of a firm offer of 30,000,000 preferred shares, with an additional 30,000,000 shares available through an oversubscription option. In the event of strong investor demand, MWIDE may exercise this option to increase the total offering size.
MWP6A offers a minimum quarterly dividend of 7.63 percent per annum and features the shortest redemption period of three years from its listing date. MWP6B provides a minimum quarterly dividend of 7.96 percent per annum with a redemption period of five years. MWP6C, which has the longest redemption period of seven years, offers the highest minimum quarterly dividend at 8.29 percent per annum.
The redemption period, which works like the maturity date for bonds, mandates the company to buy back its preferred shares from its investors at the original offering price.
If, for any reason, MWIDE is not able to redeem the shares on the expected date, the company shall pay a step-up rate of 12 percent on any of the subseries from there on.
Moreover, if the company fails to pay dividends on time, because the preferred shares are cumulative, such dividends shall be considered in arrears and must be paid before any other dividends.
2| Know the financial background of the company
MWIDE is the largest infrastructure company in the Philippines with significant interests in construction, property development, terminal operations, and renewable energy.
The bulk of the company’s revenues—approximately 94.9 percent of the total—comes primarily from its engineering and construction business. The remaining revenue is generated from its landport operations at the Parañaque Integrated Terminal Exchange (PITX), contributing about 2.3 percent, and real estate development, contributing around 2.7 percent.
Based on MWIDE’s financial performance for the first nine months of 2024, total revenues rose by 5.0 percent, increasing from P15.6 billion in 2023 to P16.4 billion. The company’s average gross profit margin also improved significantly, rising to 18.9 percent from 12.4 percent in the same period last year. As a result, net income surged by 72.8 percent to P574 million, up from P332 million year-on-year.
One key metric used to assess earnings quality of company is to look at the Quality of Earnings Ratio (QoE), which is calculated as: Cash Flow from Operations / Net Income.
A positive QoE ratio occurs when both cash flow from operations and net income are positive, with cash flow exceeding net income. This reflects high-quality earnings, indicating that reported profits are backed by real cash generation—often a sign of a strong and sustainable business.
A negative QoE ratio arises when a company has positive net income but negative cash flow from operations. This may suggest that earnings are not supported by actual cash inflows and could be driven by non-cash items or aggressive accounting, raising concerns about earnings quality.
In the case of MWIDE, although its operating cash flow of P389 million was lower than its reported net income of P574 million, the company still posted a positive Quality of Earnings (QoE) ratio, indicating that its profits are supported by actual cash generation.
With MWIDE venturing into affordable housing this year, the company be able sustain its earnings and cash flow growth this year.
3| Know how the company will invest the proceeds
MWIDE plans to use the proceeds from the offer to redeem its outstanding series 4 preferred shares on April 27, 2025 and partially finance its upcoming projects and working capital requirements.
In 2021, MWIDE raised P4 billion from selling 40 million series 4 preferred shares to the public at P100 per share. The proceeds of which were used to fully redeem its series 1 preferred shares, which were issued in 2014.
Assuming there is no oversubscription and MWIDE sold only 30 million shares and raised P3.0 billion, the company plans to allocate P2.5 billion of the proceeds to partially redeem series 4 preferred shares and use the balance of about P500 million to finance its real estate projects.
MWIDE is currently developing One Lancaster Park, a multi-phase residential project located in Lancaster New City, Imus, Cavite, which will feature a total of five residential towers. The project is now in its second phase of development.
Phase 1, which includes Towers 1 and 2, comprises 382 units, with 78 percent already pre-sold. Phase 2, covering Tower 3, consists of 442 units, with 31 percent pre-sold as of last year. Both phases are scheduled for completion in the first half of 2027.
MWIDE is also developing Southscapes, a horizontal residential project located in Trece Martires, Cavite. The development will feature 337 residential units and will utilize the company’s state-of-the-art mobile precast technology to ensure quality and efficiency. Launched in the third quarter of 2024, Southscapes is targeted for completion by 2026.
4| Know the financial risk and opportunities
MWIDE is considered relatively highly leveraged with 75 percent of its assets financed by debt. In capital-intensive sectors, a high debt ratio is not unusual. Companies in construction or infrastructure often use borrowed capital to finance long-term projects. Lenders also expect this and may offer favorable terms—as long as the company maintains stable revenue and strong project pipelines.
MWIDE’s equity ratio only dropped slightly—from 0.26 in 2023 to 0.25 in 2024—which indicates the company has maintained a stable capital base. This consistency is a good sign, as it shows the company isn't rapidly diluting ownership or becoming significantly more debt-reliant.
A 25 percent equity ratio reflects a moderate risk tolerance. This means that the company is willing to leverage debt to finance growth, which can lead to higher returns if managed well. However, it also means greater exposure to interest rate changes, refinancing risk, and debt covenants.
If we will look at debt-to-equity ratio, MWIDE’s ratio rose from 2.92 to 3.00, which signals slightly higher reliance on debt financing. While this remains within manageable levels for capital-heavy industries, it increases the importance of strong, consistent cash flow to meet debt obligations.
MWIDE’s current ratio, on the other hand, which measures its ability to pay short-term obligations using current assets, improved from 1.29 in 2023 to 1.48 in 2024.
This means the company now holds P1.48 in current assets for every P1 of current liabilities, which indicates a stronger position to meet short-term financial commitments such as payables, loans, and other operating costs.
5| Know your investment strategy
Given the company’s dividend payment track record in the past, MWIDE should be able to support its financing obligations.
Given that the median yield of preferred shares in the market is around 6.9 percent, MWIDE’s minimum dividend rate of 7.63 percent for MWP6A—which has the shortest redemption period of three years—offers a more attractive yield compared to the market average.
If we assume the opportunity cost to be equivalent to the current three-year Philippine bond yield of 5.68 percent, MWP6A’s 7.63 percent minimum dividend rate offers a clear yield advantage without extending investment duration.
For investors seeking higher returns, predictable income, and short-term commitment, MWP6A presents a compelling alternative to traditional fixed-income instruments.
With a spread of nearly two percentage points above the benchmark bond yield, MWP6A provides superior income potential while maintaining the same investment horizon of three years.
Investors receive a fixed minimum return of 7.63 percent annually, which outperforms government bonds without needing to take on long-term commitment. The three-year redemption period aligns with the bond's maturity that gives investors the same time frame but with better cash returns.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888
