Middle East tensions raise Meralco rate sensitivity, not margin risk

From AB Capital's The Opening Bell: Three Moves

Event

Meralco said it will review its fuel mix amid Middle East-driven volatility, noting supply is currently 60% gas and 20–25% coal, with potential rate impact by April, while March bills and overall supply remain unaffected.

View

We think the fuel mix is unlikely to materially change near term given existing power supply contracts. Generation charges are largely pass-through, limiting margin risk. However, higher input costs will raise rates since generation charges dominate the bill, complicating sentiment amid MER’s ongoing application for rate reset and undercollection recovery.

Catalyst

Global LNG and coal price trends will be key to gauging fuel pressure, followed by April billing adjustments as the first indication of cost pass-through, alongside regulatory progress on the rate reset.

Action

We would view share price pullbacks as potential accumulation opportunities, given MER’s regulated earnings base and limited direct margin exposure to commodity volatility.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.