Insider Spotlight
Shares of the country’s largest power distributor closed at P480 on Friday, down 18.6 percent from their P589.50 finish before President Ferdinand Marcos Jr.’s State of the Nation Address, wiping about P123.4 billion off its market capitalization.
The stock rebounded as much as 5.5 percent during Friday’s session to P506.50 before renewed selling erased those gains, leaving it at its lowest close in about a year.
Congress holds the key
George Ching, an analyst at COL Financial Group, said proposals to abolish system loss charges for consumers would require amendments to the Electric Power Industry Reform Act, or EPIRA, meaning Congress would have to approve any changes before they could take effect.
He said the more immediate question is whether lawmakers will abolish the system loss allowance altogether or simply lower the existing cap.
“Given the magnitude of power distribution’s share of profits and uncertainty as to what will happen, there’s no choice but to turn more cautious on Meralco,” Ching said in a recent note to investors.
Another key issue is who will ultimately shoulder the cost—power generators, distributors, the transmission operator, the government or consumers.
Ching warned Meralco’s P691 fair value estimate could be lowered if Meralco is required to absorb system losses.
Why Meralco is in focus
“Given the lack of clarity with regards to potential changes in the EPIRA, it is likely that sentiment will be negative for companies with power distribution businesses such as MER and AP,” Ching said, referring to Meralco and Aboitiz Power.
He said Meralco is more exposed because its power distribution business contributes about 50 percent of its net profit.
While the utility’s actual system loss rate of 5.72 percent is well below the 8.25 percent regulatory cap for private distribution utilities, requiring distributors to absorb those losses could potentially wipe out the profit margin of the business.
—Edited by Miguel R. Camus
