Meralco stock jumps on earnings, supply talks

By Abigail Marie P. Yraola, Researcher

SHARES in Manila Electric Co. (Meralco) moved upward last week as investors bought on its pre-pandemic-beating income report and news about negotiations with Aboitiz Power Corp. for a lower rate under another emergency power supply agreement (EPSA).

Data from the Philippine Stock Exchange showed Meralco ranking sixth in value turnover with P2.01 billion worth of 6.35 million shares changing hands from Feb. 27 to March 3.

Meralco shares finished at P315 apiece on Friday. On a weekly basis, the stock inched up by 1.9% from its P309.20 close on Feb. 23. For the year, the stock has grown by 5.4%.

Andrei Jorge G. Soriano, a research associate at China Bank Securities Corp., attributed the stock’s movement to its earnings report, which was released on Monday last week.

“Strong performance was driven by higher energy sales as volumes grew 6%,” he said in an e-mail, citing a sustained economic reopening such as the resumption of face-to-face learning and business activities, as well as better income contributions from its power generation business.

Mr. Soriano added that the price action in Meralco could have been influenced by flows related to the MSCI rebalancing, which concluded on Tuesday.

In a separate e-mail, Joylin F. Telagen, research head at IB Gimenez Research Securities, Inc., said that Meralco’s “excellent” financial report was also a factor and that price movement was due to traders and investors wanting to have a slice of the P11.028 cash dividend.

“For the year 2022, that will be a total of P16.834 versus the P15.283 in 2021, up by 10.15%,” she added.

The company booked a 10.2% increase in its consolidated core net income to P27.11 billion in 2022 compared with P24.61 billion a year earlier as energy sales surpassed pre-pandemic levels.

Energy sales grew by 6% to 48,916 gigawatt-hours (GWh) last year from 46,073 GWh in 2021, driven by sustained growth across all customer segments.

Meralco’s reported net income, which is adjusted to exclude one-time charges, grew by 21% to P28.43 billion.

Meanwhile, its consolidated revenues grew by 33.9% to P426.53 billion last year from P318.55 billion a year earlier.

Ms. Telagen estimates Meralco’s earnings at P6 billion for the first quarter of 2023 and P29.5 billion for the full year.

For Japhet Louis O. Tantiangco, senior research analyst at Philstocks Financial, Inc., Meralco’s net income in the first quarter may increase by 5%-9% based on initial projections while for full-year 2023, it may grow between 12% and 16%.

“These are hinged on the following assumptions: stronger energy sales for the year as the economy continues with its expansion; and improvements in the company’s cost efficiency,” he said in an e-mail.

Other reports also said that the electricity seller was negotiating for a lower rate with AboitizPower to forge another 300-megawatt EPSA for one month.

The company’s previous EPSA with AboitizPower unit GNPower Dinginin Ltd. Co. ran from Feb. 3 to 25. It was their second emergency supply deal to immediately replace a separate stalled agreement.

Earlier last week, Meralco said it was working on securing a power supply contract after its deal with GNPD ended on Feb. 25.

Last year, the company secured an EPSA with AboitizPower for P5.96 per kilowatt-hour from Dec. 15, 2022 until Jan. 25, 2023.

Mr. Soriano said that should the company secure a new EPSA, its impact is more likely on consumers.

“We think that it has minimal impact on MER’s profitability given that MER is a distributor, and power costs are generally passed through to consumers,” he said, referring to Meralco’s ticker symbol.

He added that under a new power supply deal, “rates would likely have a similar fuel pass-through mechanism, especially given the outlook for tighter supply as we head into the summer months.”

For Mr. Tantiangco, a new EPSA is deemed beneficial to Meralco as it would somehow help the company in managing its purchased power cost.

Mr. Soriano said investors should consider prospects of continued growth in energy demand as Meralco’s management placed energy sales volume in January to be up by 5%.

He also said that Meralco’s history of issuing dividends may highlight its position as a defensive stock. “Investors are also likely to closely monitor for developments relating to Meralco’s pending rate rebasing.”

For Ms. Telagen, Meralco is good to hold in the portfolio of investors looking for a stable and better dividend payout. She pegged the company’s support and resistance levels at P309 and P320, respectively.

For Mr. Soriano, support is at P308 while resistance is at P330.

Mr. Tantiangco sees immediate resistance at the P318 level and the next resistance at P329. He expects the support level at the P295-P300 range.

Meralco’s controlling stakeholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT Inc. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has an interest in BusinessWorld through the Philippine Star Group, which it controls.