Profit taking drags Meralco down as inflation and recession fears linger

INVESTORS took profits in Manila Electric Co. (Meralco) last week after being dragged down by the performance of the stock market, which fell near the 6,000 level as inflation surged and fears of recession persisted.

Data from the Philippine Stock Exchange (PSE) showed that a total of 1.497 million shares worth 548.141 million pula were traded from June 20-24.

Meralco shares were down 2.2% week-on-week, ending at P357 apiece on Friday from its P365 close on June 17. For the year, the stock rose 20%.

Regina Capital Development Corp. sales chief Luis A. Limlingan said via Viber message that Meralco’s strong performance for most of last week was due to its defensive nature and high performance before succumbing profit-taking on Friday as recession fears and inflationary pressures pushed the market to its lowest level since the outbreak of the pandemic.

“The stock underperformed this week due to continued selling pressure on the PSEi (PSE Index) caused by local inflationary pressure and global recession fears,” said equity trader Cristopher Adrian T. San Pedro. of Unicapital Securities, Inc. in an email. .

Meralco’s decline last Friday was due to last-minute profit-taking by investors in the market’s pre-close session, he said.

The stock market had sunk as investors remained cautious ahead of the Bangko Sentral ng Pilipinas (BSP) interest rate decision, along with fears of recession as rising prices continued to dampen the market.

The PSEi fell to 6,065.23 on Thursday, its lowest level in almost two years since ending at 6,019.26 on October 19, 2020, before recovering to close at 6,217.56P on the last trading day. of the week.

Meanwhile, the BSP announced its second consecutive rate hike of 25% on June 23 to deal with rising inflation.

The increase took the benchmark rate to 2.5%, as predicted by nine out of 16 analysts in a Business world survey.

The ongoing Russian-Ukrainian conflict since late February has pushed oil and other commodity prices to multi-year highs due to supply constraints, affecting economies around the world.

Analysts are watching the upcoming inflation data closely for their next move.

“I think as long as we have a hawkish BSP toward policy normalization, stock market volatility is here to stay,” San Pedro said.

“For Meralco to be considered one of the preferred long-term strategic investments, it should remain a defensive stock during periods of market volatility given its inelasticity of demand to rising consumer prices,” he said. he added.

Mr Limlingan said: “How the market moves will likely be data dependent as investors will take into account any economic releases that will affect inflation, such as commodity prices. It will also be the end-of-semester showcase.

Meralco’s first-quarter revenue rose by a quarter to 85.905 billion pesos from 64.712 billion pesos in the same period last year.

Its attributable net income also rose 28.3 percent to 5.564 billion pesos in the first three months of the year, from 4.334 billion pesos previously.

In a separate Viber message, Salisbury BKT Securities Corp. equity trader John Paolo R. Dela Cruz gave his revenue forecast for Meralco, which he said would continue its upward trend to reach 96 billion pesos in second quarter and 348.5 billion pesos for the full year 2022.

He attributed his forecast for Meralco to higher electricity prices at this time of year due to seasonal factors.

Mr. Limlingan said that apart from the summer season, the election campaign period could also have contributed to Meralco’s growth in the second quarter.

“However, growth may have been affected as consumers try to cut back a bit due to accelerating inflationary pressures,” he said.

Mr. San Pedro forecasts that Meralco will post “a conservative net income of 25 billion pesos for 2022 which will be mainly dependent on electricity demand resulting from the easing of mobility restrictions with key risks related to changes in regulatory policies and other factors that could lead to an economic recession”.

For the week, he gave his support and resistance levels at P352.20 and P374.80, respectively, noting that the stock continues to have a medium-term bullish outlook as long as it remains above P340.

Mr. Dela Cruz gave his support and resistance levels at P380-P390 and P360, respectively.

Meralco’s majority shareholder, Beacon Electric Asset Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit of MediaQuest Holdings, Inc., a subsidiary of PLDT Beneficial Trust Fund, owns an interest in Business world through the Philippine Star Group, which he controls. — Bernadette Therese M. Gadon

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