Large-scale Renewables And Grid Modernization Will Shape Future Growth

Key Takeaways

• Expansion into renewables and grid modernization supports long-term growth, operational efficiency, and positions the company for policy incentives and ESG investment.
  
• Diversification into value-added services and infrastructure upgrades boosts higher-margin revenues, operational reliability, and sustained competitiveness beyond core utility sales.
  
• Weak demand growth, regulatory uncertainty, rising distributed generation, fossil fuel cost volatility, and high debt threaten long-term revenue, margins, and financial stability.

Catalysts

Manila Electric Company holds a congressional franchise to construct, operate, and maintain an electric distribution system in the Philippines.

• The ongoing expansion of Meralco's generation capacity-particularly through large-scale renewable projects such as MTerra Solar and new battery energy storage, with Phase 1 set to go online by early 2026-positions the company to tap into rising electricity demand driven by urbanization, industrialization, and the accelerating shift to digital infrastructure, directly supporting long-term revenue growth and margin expansion.
  
• Rapid growth in customer count (up 2.5% YoY) and robust demand from value-added services (e.g., retail electricity supply, digital payment traction, microgrids, and EV charging initiatives) create new, higher-margin revenue streams and support sustained top-line growth beyond traditional utility sales.
  
• Grid modernization efforts, including advanced metering and substation upgrades, have led to quantifiable improvements in system losses, reliability, and customer connection times-these operational efficiencies should reduce OpEx and support expanding EBITDA margins over time.
  
• The national and regional push for cleaner energy, combined with Meralco's acceleration of both utility-scale renewables and LNG investment, aligns the company for policy incentives, more stable regulatory approvals, and long-term cost competitiveness, bolstering future net margins and attracting ESG capital.
  
• Philippine government infrastructure spending and grid interconnection initiatives (e.g., additional transmission capacity, resilience improvements) are likely to expand addressable demand and reduce outage risks, fueling volume growth and underpinning regulated revenue stability in coming years.

Manila Electric Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Manila Electric's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.8% today to 11.0% in 3 years time.
• Analysts expect earnings to reach ₱64.4 billion (and earnings per share of ₱55.48) by about August 2028, up from ₱47.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₱53.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, up from 13.2x today. This future PE is greater than the current PE for the PH Electric Utilities industry at 9.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.22%, as per the Simply Wall St company report.

Manila Electric Future Earnings Per Share Growth

Risks

• Sluggish electricity sales growth-energy sales grew only 0.5% year-on-year in the first half of 2025 and volume growth projections for the full year were revised sharply down from 4.5% to just 1–2%, indicating stagnant or slow demand growth; this trend threatens long-term revenue expansion.
  
• Increasing distributed energy adoption-food and beverage and industrial customers are building their own solar rooftops and relocating manufacturing outside Meralco's franchise, which lowers in-grid sales and could further erode grid dependency over time, posing a long-term risk to revenue growth.
  
• Persistent regulatory uncertainty-prolonged delays and ambiguity in tariff resets, pending approvals of power supply agreements by regulators, onetime distribution refunds, and unresolved issues regarding the regulatory asset base create revenue unpredictability and the potential for future rate reductions, directly impacting margins and cash flow.
  
• Heavy reliance on fossil fuels and exposure to volatile fuel prices-major expansions continue in LNG and coal (e.g., Atimonan plant), but generation charges and purchased power costs have risen with global LNG/natural gas price spikes and currency depreciation; if environmental regulation tightens or fuel prices remain volatile, this could squeeze net margins and add compliance costs.
  
• Large capital expenditures and rising debt levels-₱47.5 billion in CapEx (mostly solar-related), a consolidated debt of ₱204.8 billion, and high leverage (target debt/EBITDA up to 2.5x) pose risks if business conditions soften or cost recovery is constrained, potentially reducing returns, impacting earnings, and limiting financial flexibility.

Valuation

• The analysts have a consensus price target of ₱582.643 for Manila Electric based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱586.9 billion, earnings will come to ₱64.4 billion, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 11.2%.
  
• Given the current share price of ₱549.5, the analyst price target of ₱582.64 is 5.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.