Meralco: Distribution utility sales growth picks up in 3Q

Meralco's distribution utility (DU) energy sales volume inched up 0.7% YoY to 35,938GWh in January-August 2026, as new customer connections offset weaker organic demand amid cooler weather. Management expects continued recovery in 3Q, guiding for 1–2% full-year volume growth. We note this is slightly below the 2–2.5% indicated after 2Q results.

After a sluggish start to the year (Recall 1Q: -1.8%; 2Q: +0.7% volume growth), we estimate sales growth accelerated to 4–5% in July-August, pointing to a better 3Q showing. This recovery is coming later than initially expected, likely reflecting the delayed impact of El Niño, which also explains management's more conservative full-year guidance. We expect a further improvement in volumes through 4Q and into early 2027.

Improving sales volumes should support the operating outlook, but a sustained re-rating will depend on regulatory clarity, particularly on system-loss recovery and the still-delayed rate reset.

We keep estimates unchanged. While the improving demand trend supports our fundamental thesis, we expect regulatory developments to remain the dominant share-price driver in the near term. MER now offers 6.6% yield at current levels, providing some valuation support.

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.

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