Meralco may see big gains if cases resolved--JP Morgan
Saturday, May 06, 2006
Cecille Yap
XFN-Asia
MANILA Electric Co (Meralco) may post windfall gains of about 10 billion pesos this year should the power distributor's pending cases before the Supreme Court and the Energy Regulatory Commission (ERC) be decided in its favor, JP Morgan Securities Ltd said.
The brokerage said Meralco is a strong candidate for a turnaround, but that many overhangs and risks remain.
Particularly, the Philippines' largest power distributor is still awaiting the ERC's decision on a petition to increase rates by 0.1476 pesos per kilowatthour.
The firm has also been setting aside 0.25 peso per kilowatthour pending a Supreme Court ruling on its rate restructuring case.
"Both cases, if resolved, could lead to an addition of 10.3 billion pesos to its net earnings on a pre-tax basis (best-case scenario) in 2006," JP Morgan analysts Ajay Mirchandani and Edmond Lee said in a report.
Meralco is awaiting the Supreme Court's decision on its rate unbundling petition. The Court of Appeals had denied Meralco's plea for a reversal of an earlier court order that stopped the power firm's tariff increase of 0.17 peso per kilowatthour, which accompanied the rate unbundling petition.
The tariff hike includes a 0.0865 peso per kwh hike in its basic distribution rates, which was implemented for 18 months before it was ordered stopped. Meralco brought the case to the Supreme Court in March last year.
"This issue remains the key overhang for the stock. We believe resolution of this issue could substantially reduce concerns associated with this company," JP Morgan said, adding that a resolution of the case alone would add about 6.3 billion pesos to Meralco's bottomline.
The brokerage said concerns over the already high power rates in the Philippines, coupled with next year's elections, could potentially delay any tariff hike for the electricity distributor till early 2007.
On top of the existing rate hike application, Meralco is expected to submit another tariff petition in August for the upcoming performance-based regulatory methodology, which could lead to two Meralco rate petitions pending before the industry regulator.
JP Morgan said even a partial rate hike could turn around Meralco's losing ways.
Its analysis showed that Meralco's net earnings would rise by 165 million pesos for every 1 centavo increase in the firm's distribution tariff, such that a full rate hike could increase its net profit to 2.34 billion pesos, JP Morgan said.
"We would continue to see Meralco lag the main index given these concerns. We retain our neutral view with April 2007 price target of 21 pesos," it added.
At 9:35 am, Meralco's A-shares, which only Filipinos can buy, was up 0.25 pesos at 13.25 and its B-shares, which has no ownership restrictions, was still untraded after closing at 19.00 previously.
(1 dollar = 51.53 pesos)
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posted by philpower @ 7:24 AM,
