By Isa Jane D. Acabal, Researcher
MANILA Electric Co. (Meralco) shares rose last week following the Energy Regulatory Commission’s (ERC) approval of higher distribution rates, which analysts said could improve the utility’s earnings visibility after a 15-year delay in its rate reset.
Data from the Philippine Stock Exchange (PSE) showed Meralco was the fourth most actively traded stock from Oct. 12 to 16, with 2.72 million shares worth P1.2 billion changing hands.
The stock closed at P447.60 per share on Friday, up 2.4% from P437 a week earlier, outperforming the benchmark PSE index’s (PSEi) 1.4% gain. The industrial sector declined by 0.1% week on week.
Year to date, Meralco shares have fallen 22%, compared with declines of 13.9% for the industrial sector and 4.5% for the PSEi.
“Meralco finally got clarity on its long-delayed rate reset, its first in 15 years,” DragonFi Securities, Inc. Senior Research Analyst Jarrod Leighton M. Tin said in a Viber message.
The rate hike “gives the stock much clearer earnings visibility and removes a regulatory overhang that has weighed on it for years,” he said.
The ERC approved an average distribution rate of P1.48 per kilowatt-hour (kWh) for Meralco for regulatory year 2027, higher than the current rate of around P1.35 per kWh but below the P2.34 per kWh sought by the utility.
“This is the key earnings driver that investors have been waiting for and we saw that positive initial reaction, with [Meralco] gapping up and trading above P460,” Regina Capital Development Corp. Equity Analyst Jasper Timoteo A. Ondap said in a Viber message.
“The new approved rate really is a significant positive for [Meralco] and provides better earnings visibility, but the approved rate is still below expectations of over P1.60 per kWh,” he said.
Mr. Ondap said the approved increase was “understandable,” as a higher rate could place additional pressure on consumers and economic activity amid inflationary pressures and a weak economy.
The ERC also approved a total revenue requirement of about P342 billion for Meralco’s First Regulatory Period, covering July 2026 to June 2030. This is 36% below the P532 billion sought by the utility.
Meralco’s distribution rates were last reset in 2011 and had remained unreviewed for more than a decade because of unresolved regulatory periods, the ERC said.
Mr. Ondap said investors appeared to focus more on the rate reset than on the ERC’s separate order requiring Meralco to refund consumers about P2.64 billion in excess charges following a review, or “true-up,” of its distribution rates.
The refund will be implemented over approximately six months at an average rate of P0.1020 per kWh.
Separately, Meralco said its overall electricity rate for October would increase by P0.3191 per kWh to P15.0615 from P14.7424 in September, citing higher generation costs.
“The October rate hike is largely earnings-neutral since it stems from generation charges that Meralco merely passes through, though both keep the spotlight on power affordability,” Mr. Tin said.
“System loss risk also looks more contained now that Senate Bill 2486 would disallow only non-technical losses and leave cap-setting to the ERC,” he said.
Mr. Tin said investors should monitor Meralco’s third-quarter earnings release and those of other power companies for indications of the sector’s performance.
“The key items are how the new distribution rate flows into earnings, electricity sales volumes amid El Niño, and the progress of the system loss bill. With a forward dividend yield of roughly 7%, [Meralco] looks like a good income pickup at current levels,” he said.
Mr. Ondap said Meralco’s upcoming earnings release would provide a “clearer picture of its underlying operating performance.”
“In particular, the trends in electricity demand, sales volumes, and developments on its generation arm. Investors should also watch for further regulatory developments, implementation of new rates, additional adjustments or refund,” he said.
For this week, Mr. Ondap placed the stock’s support levels at P430 and P410, with resistance at P460 and P490.
Mr. Tin identified support at P400 and resistance at P450.
Meralco’s controlling shareholder, 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.