July 30, 2014

MER core net income up 7.6% YoY

In a briefing last Monday, the Manila Electric Co (MER,Buy) discussed the salient points of its 1H14 results. The following are the salient points of the discussion:

  • 1H14 consolidated core net income was at P9.9b, up 7.6% YoY. Consolidated revenues dropped 6.7% YoY largely as a result of P9.3b downward adjustment of pass-through charges on MER’s purchases from the WESM. On the other hand, consolidated expenses fell 9% to reflect the costs associated with the WESM purchase adjustments. At any rate, the 1H14 results implied a strong 2Q14 growth during which we estimate core income to have risen by 12% vs. the 1.6% growth in 1Q14.

  •  Core EBITDA rose 8.5% YoY. While EBITDA margin slightly fell to 13% in 1H14 vs.13.6% in 1Q14, this is significantly higher than the 11.3% registered in 1H13.

  • 1H14 distribution revenues grew 2.8% YoY on higher energy sales. Electricity sales grew 2.2% YoY partly driven by the 3.6% growth in customer base. In 2Q14 alone, electricity sales grew 2.6% YoY vs. the 1.7% growth registered in 1Q14. Higher 1H14 electricity sales were more notable among industrial (+5.6%) and commercial (+3.0%) customers which compensated for the weakness in residential sales (-0.5%).

  • Meanwhile, the overall average retail rate was at P9.74/kWh (+3.1% YoY) on higher generation (+3.0%), transmission (+10.6%) and taxes/universal charges (+3.7%). Meralco’s distribution charge remained almost flat at P1.67/kWh vs. the P1.66/kWh last year.

  • Meralco announced interim and special cash dividend of P5.91/sh with ex-date of 19 Aug 2014 and payable on 18 Sep 2014. The interim is based on 50% of the year's core EPS of P8.76/sh and an additional “look back” special cash dividend of 10% from previous year's EPS of P15.27/sh.

Our take: The results came within our expectations (50% of our 2014E estimates) but slightly better (54%) than consensus. There may be room for 3Q14 results to disappoint with the implementation of lower tariff rate and the potential impact of the recent typhoon that directly hit and caused significant damages within Meralco’s franchise area. However, this can be partly cushioned by improving earnings contributions from MER’s subsidiaries.– WealthSec