Learning that drives better investment decisions

No. 1 in Philippine Power, No. 2 on Profitable Growth

Background

Founded in 1903, Manila Electric Company is the largest distributor of electricity in the Philippines, generating and distributing power to more than 6.4m commercial, industrial and residential customers.

MER’s power plants are mostly run on coal and natural gas and MER accounts for 55% of the Philippines’ total energy sales.

Business Description

MER (commonly called Meralco) is a power distributor and generator through building and investing in power plants mainly on the Philippines’ biggest island of Luzon and offshore, such as in Singapore, where it has a 70% stake in a gas-fired plant and sells energy to local distributors.

It divides its customers into three segments: commercial, which accounted for 40% of sales in 2017; industrial, generating 30% of sales; and residential, which accounts for around 6m customers as of 2017.

Approximately 72% of Luzon island’s power sales and about 55% of the Philippines’ total power sales comes from MER. The majority of MER’s power output comes from gas-fired and coal-fired plants. A new plant with 455MW capacity, San Buenaventura, in which MER holds a 51% stake is also approaching its expected commencement in 3Q19.

Potential overseas expansion from MER leading a consortium bidding for ownership, management, and operation of the Electricity Company of Ghana which should be finalized next year. MER should get a 30% stake in the company that supplies 80% of Ghana’s population with electricity.

Leadership

Manuel V. Pangilinan was appointed as the Chairman of MER in 2012. Moreover, he is the position of Chairman, President, and CEO of PLDT Incorporated (TEL PM) and Smart Communications Incorporated, and serves as the Chairman for other listed and non-listed companies, such as Metro Pacific Investments Corporation (MPI PM), Philex Mining Corporation (PX PM), Beacon Electric Asset Holdings Incorporated, PLDT Communications and Energy Ventures Incorporated. He earned a Bachelor of Arts degree in Economics from the Ateneo de Manila University in the Philippines and an MBA from Wharton School of Finance and Commerce, University of Pennsylvania, US.

Oscar S. Reyes has been the President and CEO of MER since 2012. He serves in numerous positions in other companies as well, including being a member of the Advisory Board of PLDT incorporated (TEL PM), on the Council of Advisors of the Bank of the Philippine Islands (BPI PM), an independent director of Manila Water Company (MWC PM), co-Chairman of MERALCO PowerGen Corporation, and Chairman of Meralco Industrial Engineering Services Corporation. He received his Bachelor of Arts degree in Economics from the Ateneo de Manila University in the Philippines and Master’s degrees from the Ateneo Graduate School of Business in the Philippines, Waterloo Lutheran University in Canada, and the Harvard Business School in the USA.

World Class Benchmarking

Profitable Growth at MER has consistently ranked at #2 for the whole time period. In the past 12 months, MER ranked among the top 56 out of 280 large Utilities companies worldwide.

Profitability has ranked the same as Profitable Growth. Growth has shown an improving trend since 2016 and ranked at #4 in the most recent period.

Asset utilization and Profit margin have consistently ranked at #2 and #6 respectively since 2014.

Sales growth returned to #6 from #4 in the past 12 months. Margin change has stayed at #5 since 2017.


What’re your thoughts on MER?

If you like our research, share it with your friends.


DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.