March 18, 2014

MER posts P17b core net income in 2013

In a disclosure yesterday, Manila Electric Co (MER, Buy) yesterday announced core net income of P17b for 2013. This is 4.7% higher YoY but fell short of the P17.9b consensus forecast and our P17.6b net estimate. Key points from the results are as follows:

Energy sales rose 4% YoY which was weighed down only by the seasonal weakness in demand in 4Q13 (+1.7%) given the long holidays, prolonged cold weather, and transmission interruptions during the super typhoon.

Cost management kept the growth in costs and expenses to 3.1% YoY. This provided a boost to core EBITDA (+14.9% to P6.3b) and resulted in higher EBITDA margin of 10.3% in 2013 vs. 9.7% in 2012.

MER declared final and special cash dividends of P6.45b (ex-date 10 April, payable 8 May) that brings the total cash dividend to P10.55/sh (= 3.7% yield based on P286 share price).

Our take: Notwithstanding the slight shortfall in MER’s earnings vs. our forecast, we are keeping our positive view on the company given the strong cash flow generation and potential growth drivers this year. The completion of several Electric Capital Projects (ECPs) should sustain the growth momentum particularly among commercial and industrial customers. These ECPs should facilitate access to key industrial parks, the expanded Filinvest City and Pagcor Entertainment City, and key growth centers in Pasig and Cavite.

MER should also realize savings on interest payments arising from the prepayment/refinancing of expensive debt with the P18b retail bond issuance proceeds last December. The bonds carry a 4.375%-4.875% interest cost vs. MER’s 5.6% average cost of debt. MER is also looking to prepay additional high-cost debt this year.

MER should also benefit from the commissioning of 2x400 MW combined cycle plant of FPM Power Holdings in Singapore in which MER has a 28% effective stake, and contributions from its newly acquired 20% stake in Global Business Power Corp – WealthSec