{"id":330190,"date":"2024-11-04T12:14:40","date_gmt":"2024-11-04T04:14:40","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=330190"},"modified":"2024-11-04T12:14:42","modified_gmt":"2024-11-04T04:14:42","slug":"stock-in-focus-manila-electric-co-meralco-mer-4-nov-2024-by-ap-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-manila-electric-co-meralco-mer-4-nov-2024-by-ap-securities\/","title":{"rendered":"Stock in Focus: Manila Electric Co. – Meralco (MER) – 4 Nov 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>4 Nov 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Hold<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 479.23<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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We are significantly upgrading our Target Price (TP) for MER to P479.23 after factoring in the following: (1) a +3.7% adjustment in 2024 Earnings per Share (EPS) estimates and +7.5% for 2025, (2) rolling forward our valuation to use 2025 as base year, (3) a 50bps reduction in the risk-free rate, and (4) revisions to our regulatory risk discount (RRD) framework which lowered the RRD for MER from 15.0% to 12.1%. <\/p>\n\n\n\n

However, we note that the RRD would go down to 6.0% if the bill granting a 25-year extension to MER\u2019s franchise is passed, which would warrant another TP upgrade. Until that happens, our TP remains below the consensus TP of P489.59, and is also slightly below the last traded price of P500.00. As such, we maintain our HOLD rating on MER.<\/p>\n\n\n\n

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

MER earnings come slightly ahead of estimates on higher DU sales<\/strong><\/p>\n\n\n\n

MER\u2019s 3Q 2024 reported net income of P11.3-Billion was slightly ahead of the P10.8-Billion we expected for the quarter, considering the seasonality of electricity demand. On a YTD basis, the 9M 2024 net income of P33.8-Billion reached 81.6% of our full-year forecast, which is also slightly higher than expected. <\/p>\n\n\n\n

As expected, energy sales from MER\u2019s distribution utility grew by a more modest 4.1% year-on-year (YoY) compared to the El Ni\u00f1o-boosted 8.5% jump last quarter. However, residential energy sales (+6.5% YoY) continued to grow above trend, while commercial (+4.7% YoY) has almost fully recovered back to its pre-pandemic growth trend of 4.8% annual growth.<\/p>\n\n\n\n

Unregulated businesses continue to make meaningful contributions<\/strong><\/p>\n\n\n\n

MER\u2019s unregulated businesses accounted for 41% of core consolidated net income (CCNI) for the first nine months, down slightly from 45% in the period ending June 2024 but still above MER\u2019s goal for these segments to make up more than 40% of earnings. <\/p>\n\n\n\n

Overall, core earnings from unregulated businesses grew by 14.1% YoY to P14.4-Billion on the back of trading gains and better margins from the RES segment. The powergen segment still did poorly due to a higher base from last year, but better margins from the participation of GBP\u2019s power plants in the reserves market somewhat offset the YoY decline from MGen\u2019s Singapore unit.<\/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>