{"id":327735,"date":"2024-05-03T01:50:22","date_gmt":"2024-05-02T17:50:22","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=327735"},"modified":"2024-05-03T01:50:28","modified_gmt":"2024-05-02T17:50:28","slug":"stock-in-focus-manila-electric-co-meralco-mer-25-jan-2024-by-ap-securities-2","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-manila-electric-co-meralco-mer-25-jan-2024-by-ap-securities-2\/","title":{"rendered":"Stock in Focus: Manila Electric Co. – Meralco (MER) – 3 May 2024 by AP 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>AP Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>3 May 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Hold<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 351.25<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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Maintaining a HOLD due to regulatory risks. MER had no updates to provide regarding the fate of its congressional franchise, which is set to expire in 2028. There has also been no progress on its rate rebasing application with the ERC. Given that its DU business still comprises a majority of its income stream, and with the push into unregulated businesses hampered by headwinds in the powergen space, the regulatory risks still remain significant for MER. <\/p>\n\n\n\n

As such, we maintain our risk-adjusted Target Price of P351.25 with an equivalent rating of HOLD. However, we will be updating our forecasts for MER after factoring in the 2023 and 1Q 2024 which will likely result in a slight upgrade to our target price.<\/p>\n\n\n\n

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

Earnings jump on lower costs despite dip in revenues<\/h3>\n\n\n\n

MER reported that revenues dipped by -3.0% quarter-on-quarter (QoQ) and -1.0% year-on-year (YoY) on lower pass-through costs, but it was accompanied by a -6.3% QoQ \/ -5.0% YoY drop in costs and expenses, resulting in net income growing by 18.9% to P9.6-Billion.<\/p>\n\n\n\n

Power demand sizzles on higher temperatures<\/h3>\n\n\n\n

Energy sales rose by 9.0% to 12,307 GWh, much faster than our forecast of 4.2%, as high temperatures drive residential and commercial demand to grow by more than 11.0%. Industrial demand remained tepid, growing by only 3.3% vs our forecast of 4.3% growth. However, management said that they are starting to see green shoots in the industrial space with expansions in the semiconductor and F&B segments.<\/p>\n\n\n\n

Operating margins expand on lower costs<\/h3>\n\n\n\n

Purchased power costs were 3% lower than the same period last year, tracking the downtrend in the price of coal and LNG, while power plant O&M costs dropped 33% due to the scheduled outage of two power plants and lower fuel costs. As a result, operating margins expanded to 10.6% from 8.0% in the previous quarter and 6.9% in
the same period last year.<\/p>\n\n\n\n

MVP suddenly optimistic<\/h3>\n\n\n\n

MER Chairman Manny Pangilinan took an optimistic tone on the company\u2019s prospects this year, in stark contrast to his cautious tone during the 2023 Analyst Briefing. The company set a guidance of possibly more than P40.0-Billion in consolidated core net income this year, or more than 3.6% higher than 2023. This is also substantially higher than our forecast decline of 6.7% from last year\u2019s high base. The company also seemed intent on pushing deeper into the powergen segment following its acquisition of a controlling stake in SPNEC and entering into a JV agreement with San Miguel and Aboitiz to invest in SMC\u2019s natgas power plants and to develop an LNG facility.<\/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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All Stock Rankings<\/a><\/blockquote>