Meralco sees major financial relief
Sunday, December 10, 2006
Manila Electric Co. (Meralco) said the Supreme Court decision upholding its tariff rate increase in 2003 won’t affect consumers’ power bills but will help the company reverse provisions that had weighed on earnings since 2004.
News of Meralco’s win in the Supreme Court bolstered the power distributor’s share price.
Shares of Manila Electric Co. (Meralco) surged yesterday after the Supreme Court ruled that a 2003 tariff increase implemented by the power distributor under its rate unbundling program was valid, freeing the company from having to make massive provisions and lifting its earnings outlook, dealers said.
Meralco Treasurer Rafael Andrada told local television station ANC that the country’s largest power distributor by sales will reflect extraordinary gains in its books once the Supreme Court ruling on its P0.17 a kilowatt-hour increase becomes final.
"For Meralco, it would mean a reversal of all the provisioning that we’ve been doing since that period," Andrada told the television station. "There will be an extra ordinary gain, but it’s purely a profit and loss impact as far as the company is concerned."
Based on Meralco’s financial statements, the power distributor had set aside around P20.3 billion between January 2004 and the end of September this year as probable losses in case the rate increase was disallowed and ordered refunded to consumers. The provisions resulted in net losses for 2004 and 2005.
Ricardo Puig, analyst for Wealth Securities, said the reversal of the provisions will add around P4 billion a year to Meralco’s net profit, boosting earnings forecasts both for this year and 2007.
If that happens, Puig said, the price-to-earnings ratios for Meralco’s shares will drop to 6.4 and 5 times, respectively, for this year and in 2007 compared to the current 20.3 and 10.8 times.
Consumer groups pursuing the case to stop Meralco from collecting the rate adjustment can still ask the Supreme Court to reconsider its decision.
In January 2005, the Court of Appeals canceled the Energy Regulatory Commission’s order allowing Meralco to raise rates, but the power distributor continued to collect the additional fee, providing an amount for a possible refund that might be ordered by the courts.
In a ruling dated Dec. 6, the Supreme Court upheld the legality of ERC’s rateincrease approval, but told the regulator to review the financial data submitted by Meralco backing its request for the rise.
"One impact of this is that we will now stop setting aside funds for probable losses," said Meralco head of utility economics Ivanna dela Pena.
"The market is expecting a dramatic improvement in Meralco’s bottom line going forward as the company will no longer make any further provisions," said Jose Vistan, research director at AB Capital Securities Inc.
He said Meralco was also expected to reverse the provisions that had already been made, estimated at around P20 billion, and eventually revise its previous financial statements.
The Philippines’ leading power distributor has been booking provisions for probable losses from an unfavorable court ruling on the tariff unbundling case.
In 2005 alone, Meralco’s total provisions reached P5.9 billion. In the first nine months of this year, additional provisions of P4.62 billion had been made.
Meralco posted a net loss of P350 million for 2005, and profit of P596 million for the first nine months of 2006.
posted by philpower @ 4:59 PM,
