Share prices of Meralco seen to test P50 levels

MANILA, Philippines - Shares of Meralco, the Philippines’ largest electric company, are expected to test price support levels near its one-year low, analysts told GMANews.TV over the weekend. After breaching two major price support levels—P80 and P60—last month, Meralco’s stock are expected to test “P50 levels within the next few weeks," said Peter Lee, an analyst at Makati-based IGC Securities Inc, which buys and sells the shares. Jason Lagrimas agrees. However, the analyst for 2Trade Asia clarified that the shares will still experience “short-term play," indicating that investors may want to take advantage of low prices and sell them as soon as values go up. According to Lagrimas, this explains why shares of the company, the lone electricity distributor in Metro Manila, went up during Friday’s trading. Meralco shares, the eighth-most actively traded during the previous session, went up by P2.50 from P59.00 last Thursday. The stock’s one-year low is at P56.00 while its 52-week high is P116.00. The stock’s performance improved despite a row between the Lopez-led company, state-led pension fund Government Service Insurance System (GSIS), and the Securities and Exchange Commission, which regulates corporations. During the company’s annual stockholder’s meeting last Tuesday, the SEC issued a document which told Meralco to exclude a substantial number of proxy votes cast in its favor. But last Friday, Meralco was able to secure a court order restraining the corporate regulator from acting on various complaints filed by the pension fund. The 60-day temporary restraining order—issued by the Court of Appeals—also allows Meralco to retain control of the company. However, these developments have not dimmed the analysts’ prospects on the stock. Both agree that Meralco shares remain “extremely undervalued." According to Lee, the current dispute is about, among others, “performance-based ratings (PBR)," a new financial mechanism allowing Meralco to increase earnings by charging higher fees to its customers. Although Meralco’s PBR application has already been approved by the Energy Regulatory Commission (ERC), the new mechanism has yet to be implemented. “As an investor, the prospect of Meralco this year is that earnings would have been 50 percent higher if the PBR was implemented," Lee told GMANews.TV. “With that assumption and current prices, Meralco remains reasonably valued." Besides removing a cap on earnings, the PBR also replaces the return on rate base (RORB), an older financial calculation—mandated in the 1936 Public Utilities Law—which requires that Meralco should only collect 12 percent profit on its assets every year. The RORB was among the many crucial formulas cited by the Supreme Court in 2003 when it instructed the electricity distributor to refund P30 billion to its four million customers. - GMANews.TV