Meralco 1H 2026 Results: Strong Generation Gains Offset Regulatory Headwinds

 

MER 2Q26 Quarterly Report

Manila Electric Company (Meralco) delivered a resilient financial performance in the first half of 2026, navigating a complex environment of shifting distribution rates and volume stagnation. The Group reported a 16% year-on-year increase in consolidated revenues, primarily propelled by pass-through charges and a substantial 14% growth in MGen’s net income. Despite a 53% drop in operating cash flow due to a significant rise in trade receivables, core performance remains robust, with a Core EBITDA of ₱44.8 billion and a consolidated core net income (CCNI) that continues to support aggressive capital deployment in renewables and LNG.

Quick Stats

• Consolidated Revenues: ₱283.7B
• Consolidated Net Income: ₱27.5B
• Consolidated Customer Count: 8.3 million

Income Statement: Revenue Growth and Profitability

During the six months ended June 30, 2026, the Meralco Group's results of operations demonstrated that top-line growth was decoupled from energy sales volume, which saw a marginal 0.5% decline. Consolidated revenues rose to ₱283,710 million, effectively offsetting a 5% contraction in the average distribution rate (₱1.36 per kWh) through a surge in pass-through generation and transmission charges.

Item	1H 2026 (Unaudited)	1H 2025 (Unaudited)
Revenues	₱283,710 million	₱245,219 million
Costs and Expenses	₱257,443 million	₱219,669 million
Net Income Attributable to Parent	₱26,296 million	₱23,635 million

The 16% revenue expansion was heavily influenced by an increase in the average retail rate to ₱13.09 per kWh, compared to ₱11.41 per kWh in 1H 2025. This rise was underpinned by a 14% increase in generation charges—resulting from higher fuel prices, peso depreciation, and elevated WESM costs—and a sharp 47% spike in transmission charges due to reserve market ancillary service costs. The 11% growth in net income attributable to the parent underscores the critical role of MGen in stabilizing the bottom line amidst distribution-side regulatory reset adjustments.

Balance Sheet: Assets and Debt Profile

As of June 30, 2026, the Group’s total assets reached ₱840,999 million, representing a 2% increase from the audited figures of December 31, 2025. This expansion reflects continued investment in utility plants and the development of power generation projects.

Financial Item	June 30, 2026	December 31, 2025
Total Assets	₱840,999 million	₱823,879 million
Total Debt	₱247,316 million	₱230,046 million
Equity Attributable to Parent	₱181,754 million	₱173,137 million

Total debt increased by 8%, or approximately ₱17.2 billion, primarily driven by new borrowings for strategic project financing within Terra Nueva, Inc. (TNI) and Solar Philippines Tarlac. Despite the increased leverage, the Group maintains a stable capital structure with a Debt to Equity ratio of 1.36 and a Current Ratio of 0.93.

Cash Flow Statement: Liquidity and Capital Deployment

The Group’s cash flow dynamics in 1H 2026 signal a period of intensive investment funded by strategic divestments rather than operations. Net cash provided by operating activities plummeted by 53% to ₱9,971 million, a decline largely attributable to a ₱17.2 billion increase in trade receivables—a trend that warrants close monitoring for credit risk and collection efficiency.

Conversely, investing activities were bolstered by the ₱44.2 billion proceeds from the return of investment (redemption of preferred shares) in Chromite Gas Holdings. These proceeds were instrumental in funding the Group’s ₱38.9 billion capital expenditure (CAPEX) for the first half of the year, which prioritized the rehabilitation of electric distribution facilities and the development of renewable energy plants.

The Strategic Outlook: Bull Case vs. Bear Case

Bull Case (Reasons for Optimism)

• Long-Term Franchise Security: The enactment of RA 12146 secures Meralco's franchise through 2053, providing a multi-decade horizon for regulatory certainty and infrastructure planning.
• Generation Capacity & Renewables: The July 14, 2026, inauguration of the Terra Solar project and the expansion into hydrogen-ready CCGT facilities in Singapore position the Group as a regional leader in the energy transition.
• Organic Customer Growth: A 2% year-on-year increase in the customer base (reaching 8.3 million) provides a widening foundation for future demand.

Bear Case (Potential Risks)

• Regulatory & Refund Pressures: The 1st Regulatory Period (2026–2030) rate rebasing process remains a source of uncertainty. Furthermore, the remaining ₱14.2 billion unrefunded AWAT balance represents a significant future liability that will continue to compress distribution revenues.
• Grid Defection: Increasing adoption of rooftop solar led to 372 GWh of customer self-consumption, directly impacting energy sales volume.
• Contingent Liabilities: Ongoing mediation with the National Power Corporation (NPC) and unresolved Real Property Tax (RPT) assessments continue to pose financial risks.

Key Segment Performance

Meralco’s operational strength is increasingly diversified beyond traditional distribution, though the Power segment remains the primary revenue engine.

• Power Segment: Accounts for 98% of total revenues (₱279,036 million). Performance was bolstered by MGen, which saw its net income grow 14% to ₱11,990 million, benefiting from its major LNG interest in Batangas.
• Other Services: Revenues reached ₱9,641 million. MIESCOR stood out with a 9% revenue increase, driven specifically by high Engineering, Procurement, and Construction (EPC) project activity.

Conclusion and Investor Takeaway

Meralco demonstrated its ability to defend a 9% profit margin by leveraging its power generation arm to offset a 5% decline in distribution rates and rising purchased power costs. The Group’s liquidity remains healthy, supported by the strategic redemption of Chromite Gas Holdings preferred shares. Shareholder value remains a priority; following the ₱16.67 per share dividend paid in April 2026, the Board of Directors approved an interim cash dividend of ₱11.758 per share on July 29, 2026. As Meralco transitions into its new franchise period, its aggressive pivot toward renewables and gas-to-power projects provides a compelling long-term bull case for investors.

Source: PSE Edge