Manila Electric H126: Generation drives earnings amidst soft distribution

Research evidence excerpt

Manila Electric H126: Generation drives earnings amidst soft distribution

ed adoption of solar rooftops. 12/28E 52.07 49.10

Mica AbaquitaQ: Has the company's outlook/guidance changed?

Analyst

Management raised its distribution volume growth guidance to 2-2.5% (vs 1-2% mica.abaquita@ubs.com

previously) due to the anticipated El Niño in H226, supporting a recovery in demand for +632-8784 8827

H2 as seen in Q2. On generation, the phase 1 of the MTerra Solar project is on track to

deliver 600MW by August 2026. On the regulatory front, management now expects a

rate-reset decision by October 2026 with retroactive application to July 1, 2026.

Valuation: We have a Buy rating on Meralco.

Meralco's share price weakened following President Marcos' call for legislative

amendments to abolish the pass-through of system loss charges, raising concerns on the

impact on distribution utilities. In our view, a policy that prevents utilities from recovering

efficient system losses risks undermining the government’s objective of encouraging

private capital for grid modernization, renewable integration and overall energization.

Hence, we think the more probable outcome would be a recalibration of the recovery

mechanism than its outright removal - consistent with global practice. We thus view the

statement as a start of a broader regulatory review, rather than a definitive change to

Meralco's earnings outlook. See: System loss charges under regulatory scrutiny.

Highlights (Pm) 12/23 12/24 12/25 12/26E 12/27E 12/28E 12/29E 12/30E

Revenues 443,612 470,362 497,325 521,263 565,831 608,088 644,379 678,942

EBIT (UBS) 36,333 45,033 48,473 48,380 56,550 61,393 63,627 65,253

Net earnings (UBS) 38,023 45,859 51,130 50,018 54,811 58,685 61,362 63,656