{"id":322896,"date":"2023-04-28T03:09:19","date_gmt":"2023-04-27T19:09:19","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=322896"},"modified":"2023-04-28T03:09:21","modified_gmt":"2023-04-27T19:09:21","slug":"stock-in-focus-manila-electric-co-meralco-mer-28-apr-2023-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-manila-electric-co-meralco-mer-28-apr-2023-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: Manila Electric Co. – Meralco (MER) – 28 Apr 2023 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>MER<\/td><\/tr>
Company Name<\/strong><\/td>Manila Electric Co. (Meralco)<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>28 Apr 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 411.00<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

We set a target price (TP) of Php411.0 for MER based on a price-to-earnings (PE) ratio of 14.6x, the average of MER\u2019s historical PE for 2019 (pre-pandemic year) of 17.4x and 2023 (4th year of pandemic) of 11.72x. This gives a potential share price upside of 24.5% and total return of 29.7% wherein our FY23F dividend yield estimate of 5.2% is included. We highlight our BUY rating for MER.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

Core net income 40% higher y\/y <\/strong><\/p>\n\n\n\n

MER\u2019s 1Q23 net income grew by 26% year-on-year (y\/y) to Php8.1bn. Excluding one-offs such as forex gains, core net income reached Php9.0bn, 40% higher y\/y beating consensus estimates, fuelled by sales growth and power generation\u2019s strong performance. Revenues rose by 23% y\/y to Php105.6bn in 1Q23 with the 2% increase in energy sold to 11,287 GWh. Equity in net earnings also jumped 85% to Php3.9bn, primarily from PacificLight Power Pte. Ltd.\u2019s (PacificLight) Php3.1bn contribution as it enjoyed fuel margins from its contracts in Singapore.<\/p>\n\n\n\n

Distribution business: steady state<\/strong><\/p>\n\n\n\n

Revenues jumped 23% y\/y to Php105.6bn as MER continued to experience a 2% sales growth with 11,287GWh driven by the commercial segment at 4,213 GWh, which already exceeded pre-pandemic level of 4,123 GWh (2019) from the near full-year economic reopening. Residential segment lagged by 3% since people went out more from the easing of lockdown restrictions. The industrial segment also dropped 3% y\/y to 3,336 GWh due to weak demand from the semiconductor and cement industry as input costs were high.<\/p>\n\n\n\n

Power generation boost up<\/strong><\/p>\n\n\n\n

With the slowdown in sales growth, MER got a lift from its power generation business, as equity in earnings of associates soared 85% y\/y to Php3.9bn. This was primarily lifted by PacificLight\u2019s Php3.1bn contribution to MER\u2019s core net income, which was 77% higher y\/y on account of higher retail margins from its secured contracts. San Buenaventura Power Ltd. Co. (SBPL) also contributed Php0.9bn on 100% plant availability. Global Business Power Corp. (GBP)\u2019s earnings also turned positive, due to increased energy sold and the termination of its fixed rate contacts in 4Q22.<\/p>\n\n\n\n

Earnings outlook<\/strong><\/p>\n\n\n\n

We see FY23F\/FY24F net income at Php31.7bn\/Php33.0bn, which are higher by 17%\/4% y\/y. We expect 3%\/2% growth in sales volume from the full-year economic reopening, bringing revenue growth to 12% this year and 2% next year. We also see an 8% increase in average retail rate to Php9.15\/kWh this year and stay flat next year as the power supply outlook remains bleak. Management expects WESM prices to remain high at Php9.85\/kWh.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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