Maybank Re-Initiates Meralco Share Offer

MAYBANK Investment Banking Group reiterated a “buy” rating on Manila Electric Co. (Meralco/stock code MER) with a target price of PHP 516 per share, given the company’s role as the sole distribution utility in Metro Manila and its growing generation portfolio.

“Our target price implies an EV/Ebitda (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple of 9.1x, which is in line with the five-year average MER of 9.2x,” Maybank said in a report last week.

Maybank said its position reflects a balanced and prudent valuation of the company’s stable cash flows and growth prospects.

“We believe this valuation is not disproportionate as it takes into account the expected continued growth of MER’s distribution business and the expansion of its generation portfolio, while also taking into account potential regulatory risks and the need for a conservative approach to rate assumptions,” it added.

Maybank noted that Meralco’s distribution business continues to be a major contributor to net income, which stood at 64% in 2023.

Meralco’s electricity sales have fully recovered since 2022, thanks to the country’s economic recovery; in the first half of 2024, power sales reached 26,954 GWh (gigawatt-hours), an 18 percent increase compared to the first half of 2019.

“We forecast revenue growth of 5 percent in fiscal 2024 and 4 percent in fiscal 2025, supported by steady volume growth coupled with an 80 percent elasticity of energy sales to GDP,” the report said.

Maybank said it sees Meralco’s aggressive expansion into the power generation segment as evidence of the company’s commitment to strengthening its generation capabilities.

Maybank estimates Meralco’s net income will grow by 12-10 percent year-on-year (YoY) in fiscal 2024 and 2025, while its power tariff revenue is expected to increase by 7.68 percent YoY in fiscal 2024 due to acquisitions.

“As a result, we expect the net profit shares of associations and (joint ventures) to increase by 31 percent year-over-year in fiscal 2024 estimates,” it concluded.

Meralco shares ended Friday’s trading session at PHP417 per unit.