The MERALCO (MERB – P55.0) and PNOC-EDC (EDC – P4.55) Bonanza; PSEi at 3,000
The market has not fully digested the bonanza from two recent events. First, the Supreme Court (SC) ruling on MERALCO allowing it to keep the P0.0875 rate hike that was implemented in 2003. Second, the successful listing of EDC, which saw its share price, rose by 42% during its debut.
There are two implications in the MERALCO ruling.
First, it shows that the government is willing to take a “pro-business” stand in regulating the utility sectors. This is a 360-degree turnaround form the populist stand the government took earlier on. The move should see a re-rating of the utility sector at par with the market. Considering that most utility counters are trading 30% below market PER, the re-rating will thus bring the PSEi to 3,000 levels.
Second, we should not underestimate the liquidity boost provided by the surging share price of MERALCO. To date, its share price has risen by almost 175%. MERALCO is a widely held stock. The wealth effect on MERALCO shareholders should spread to the market. Soon, this "liquidity" seek other undervalued stocks.
On the other hand, the successful listing of EDC will pave the way for other mega deals. In the pipeline are the privatization of National Power Corporation (NAPOCOR) and National Transmission Corporation (TransCo). The share price movement of EDC today is an indication that foreign funds have strong appetite for local equity issues. The offering of EDC is the biggest IPO since the listing of Petron Corp. (PCOR – P4.05) in 1995. Note that the liquidity boost from the Petron listing essentially propelled the PSEi to new highs in 1996. This is exactly where we are right now. To some extent, EDC is the new Petron.
So, I guess all the elements are in place to bring the market to 3,000 levels. As I mentioned before, we need to see “liquidity-flow” from local and foreign investors for the market to break out of the 2,800 levels. I think we are about to witness the move. The only wildcard in the equation is the political situation, which hopefully will be under control.
For investors, the key theme for the market is to overweight utility stocks. The writings are on the wall. My top picks are MERALCO (MERB – P55.0), PNOC EDC (EDC – P4.55) and Manila Water (MWC – P9.80).
There are two implications in the MERALCO ruling.
First, it shows that the government is willing to take a “pro-business” stand in regulating the utility sectors. This is a 360-degree turnaround form the populist stand the government took earlier on. The move should see a re-rating of the utility sector at par with the market. Considering that most utility counters are trading 30% below market PER, the re-rating will thus bring the PSEi to 3,000 levels.
Second, we should not underestimate the liquidity boost provided by the surging share price of MERALCO. To date, its share price has risen by almost 175%. MERALCO is a widely held stock. The wealth effect on MERALCO shareholders should spread to the market. Soon, this "liquidity" seek other undervalued stocks.
On the other hand, the successful listing of EDC will pave the way for other mega deals. In the pipeline are the privatization of National Power Corporation (NAPOCOR) and National Transmission Corporation (TransCo). The share price movement of EDC today is an indication that foreign funds have strong appetite for local equity issues. The offering of EDC is the biggest IPO since the listing of Petron Corp. (PCOR – P4.05) in 1995. Note that the liquidity boost from the Petron listing essentially propelled the PSEi to new highs in 1996. This is exactly where we are right now. To some extent, EDC is the new Petron.
So, I guess all the elements are in place to bring the market to 3,000 levels. As I mentioned before, we need to see “liquidity-flow” from local and foreign investors for the market to break out of the 2,800 levels. I think we are about to witness the move. The only wildcard in the equation is the political situation, which hopefully will be under control.
For investors, the key theme for the market is to overweight utility stocks. The writings are on the wall. My top picks are MERALCO (MERB – P55.0), PNOC EDC (EDC – P4.55) and Manila Water (MWC – P9.80).
posted by jack galt at
6:17 PM
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