Thursday, October 28, 2010

Power play: Meralco vs. Petron

Manila Standard Today
BY TONY LOPEZ



Fearless forecast: The Manila Electric Co., the country’s power retailing monopoly in Luzon, could become the biggest company in sales in 2010, or at least give its rival energy company, Petron Corp., a run for its money.

If current trends continue, Meralco will register revenues of P250 billion to P255 billion, assuming it keeps its 32 percent sales growth in the first nine months for the whole of 2010. 

Petron Corp., on the other hand, will post revenues of P266 billion, assuming its 50 percent sales hike in the first half could be repeated in the second half. But then, keeping the 50 percent sales gain is a big if because Petron does not enjoy the advantage Meralco has—namely a hidden but large rate increase granted under the so-called Performance Base Rating (PBR) system.

PBR simply means Meralco promises to be good and having promised so, it is given an automatic rate increase. The increase is often unknown to electricity users—you and me.

Sales of P11 billion will decide who is No. 1 between the two giants.

The signs of hefty growth are there for Meralco. In the first half, revenues rose 34.9 percent to P127.46 billion, up a hefty P33 billion. “The higher revenues were largely due to the 35-percent increase in electric sales, which accounted for 97.6 percent of the total revenues,” said the company.

In the first nine months, Meralco’s revenue growth was sustained. Sales jumped an electrifying 31.8 percent to P183.39 billion.

Even more dramatic was the surge in core net income, by 79.8 percent, to P9.15 billion. In the first half, Meralco’s core net income also jumped by 80 percent.

Why? It is not exactly the management brilliance of Manuel V. Pangilinan, the new Meralco president and CEO. It’s pricing. 

Meralco peso sales rose 32 percent even while volume of electricity sold increased by just 11 percent to 22,660 GWh. 

In other words, Meralco had a rate increase and not many people know about it. If you check your electricity bill, you will find that Meralco’s distribution charge has quietly increased to as high as 31 percent. 
It used to be only 20 percent.

Also, times have been good.

Look at Petron under Chairman and CEO Ramon S. Ang. The country’s No. 1 petroleum company also increased its profits, by 64 percent, to P2.96 billion in the first half, from P1.8 billion a year ago.

“The significant improvement in the company’s bottom line was fueled by higher domestic sales and better margins from petrochemical feed stocks coupled with a reduction in interest expense and translation gains on dollar-denominated transactions,” Petron said in a disclosure.

Petron profits rose dramatically not because it raised the prices of its petroleum products dramatically, unlike Meralco, which benefited last April from a so-called Performance Based Rate increase of about 26 centavos, from an average of P1.227 per kilowatt hour to P1.49 per kwh.

Petron’s first half revenues amounted to P115.35 billion, a 50-percent increase. If this 50 percent gain holds true for the whole year, Petron is expected to ring up total sales of P266 billion for 2010.

On the other hand, if the 32 percent revenue increase of Meralco holds for the whole year, the utility giant will chalk up sales of P250 billion.

Not to be ignored in the Meralco-Petron sales rivalry is San Miguel Corp. (SMC), the No. 1 company in sales in 2009, with P233.64 billion revenues, up 27.39 percent. The diversified conglomerate was also No. 1 in profits in 2009, with P57.8-billion net.

In the first half, SMC sales rose by just 8 percent to P91.89 billion. In the PSE tabulation, however, SMC revenues were P97.34 billion, down 30 percent.

The performance of listed companies for the first half of 2010 shows all the right ingredients are present for a strong recovery from the impact of the global recession. Companies listed with the Philippine Stock Exchange (PSE) posted a 20.1-percent growth in combined net income to P232.2 billion for the first six months of 2010 compared with P193.36 billion for the same period last year.

Combined revenues also grew 20.1 percent to P1.57 trillion from P1.31 trillion in 2009.

PSE President and CEO Val Antonio Suarez says the broad-based growth of the listed firms is consistent with the strong performance of the local economy.

“The general economic environment has been very conducive for businesses with stable inflation rates and interest rates kept at low levels,” he said in a statement.

Astro del Castillo, managing director of First Grade Holdings, cites the major ingredients behind the robust growth of the listed firms—low interest rates, new government (which means new confidence), increasing remittances from overseas Filipino workers.

“The companies are bouncing back from the crisis,” he relates. “Some are even performing better than expectations. Most analysts and economists are really expecting 2010 to be a better year compared to 2009.”

Del Castillo sees the high cost of electricity and the uncertainty in power supply as the only major challenge facing the listed companies for the rest of the year.

bna.biznewsasia@gmail.com

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