PH_MER: revenue grows, but EBITDA declines — margin squeezed amid rising costs

On March 31, 2026, PH_MER reported results for the first quarter of 2026. Revenue grew 5.5% to PHP 120,779 million, but EBITDA declined 5.7% to PHP 14,546 million, while net profit rose 2.0% to PHP 11,165 million. At the current price, the shares look attractive: P/E and EV/EBITDA multiples are at moderate levels, and the dividend yield exceeds 6%.

Key takeaways

— Revenue grew 5.5% thanks to higher tariffs and MGen's contribution, but electricity sales volumes fell 2%

— EBITDA declined 5.7% due to higher purchased power costs and operating expenses

— Net profit rose 2.0% thanks to higher income from associates, offsetting weak operations

— Operating cash flow fell sharply to PHP 3,474 million, limiting capacity to fund capex

— Capital expenditure remains high at PHP 19,424 million for the quarter, exceeding operating cash flow

— Trailing dividend yield of 6.15% makes the stock attractive for income investors

— Leverage remains moderate: net debt to EBITDA for the last 12 months is 1.46

Attractiveness

Key figures, PHP bn

Revenue grew 5.5% thanks to higher tariffs and MGen's contribution, but electricity sales volumes fell 2%

In the first quarter of 2026, PH_MER's consolidated revenue reached PHP 120,779 million, up 5.5% year-on-year. Growth was driven by higher pass-through generation and transmission charges and increased MGen revenues. However, electricity sales volumes fell 2% to 12,273 GWh due to cooler weather compared with the hot first quarter last year.

Power segment revenue rose 6% to PHP 118,097 million, while other services revenue grew 12% to PHP 4,978 million. Growth in other services was driven by Radius, MIESCOR, and MServ. MERALCO's average retail rate rose 12% to PHP 12.39 per kWh, offsetting lower volumes.

EBITDA declined 5.7% due to higher purchased power costs and operating expenses

EBITDA for the first quarter of 2026 was PHP 14,546 million, down 5.7% year-on-year. EBITDA margin contracted to 12.0% from 13.5% in Q1 2025. The main driver was a 7% rise in purchased power costs to PHP 92,673 million, consistent with higher pass-through revenues but not fully offset by revenue growth.

Operating expenses also rose: depreciation and amortization increased 12% to PHP 4,174 million, and contracted services costs rose 11%. This led to a decline in operating profit to PHP 10,283 million from PHP 11,451 million a year earlier.

Net profit rose 2.0% thanks to higher income from associates, offsetting weak operations

Net profit for Q1 2026 was PHP 11,165 million, up 2.0% year-on-year. Growth was driven by a rise in equity in net earnings of associates and joint ventures to PHP 4,891 million from PHP 3,317 million in Q1 2025, offsetting lower operating profit.

Net income attributable to equity holders of the parent rose 4% to PHP 10,833 million. Earnings per share were PHP 9.61 versus PHP 9.27 a year earlier.

Operating cash flow fell sharply to PHP 3,474 million, limiting capacity to fund capex

Operating cash flow for Q1 2026 was only PHP 3,474 million versus PHP 9,721 million a year earlier — a 64% decline. This was due to higher receivables and other working capital changes, despite revenue and profit growth.

Such a low operating cash flow means the company cannot fully fund its capital expenditure from operations, increasing reliance on debt financing.

Capital expenditure remains high at PHP 19,424 million for the quarter, exceeding operating cash flow

Capital expenditure in Q1 2026 was PHP 19,424 million, significantly above operating cash flow. Funds were directed to distribution network construction, equipment upgrades, and development of generation capacity, including solar projects.

The shortfall was covered by borrowing: total debt rose to PHP 238,140 million from PHP 230,046 million at end-2025. Net debt increased to PHP 125,210 million.

Trailing dividend yield of 6.15% makes the stock attractive for income investors

Over the last 12 months, PH_MER paid dividends providing a yield of 6.15% at the current price. This is above the market average and makes the stock attractive for income-oriented investors.

The company has historically maintained a high payout ratio, and with LTM net profit at PHP 51,060 million, the dividend stream next year could remain at a comparable level. However, lower operating cash flow could pressure payouts if the company prioritizes capex.

Leverage remains moderate: net debt to EBITDA for the last 12 months is 1.46

Net debt to EBITDA for the last 12 months is 1.46, a moderate level for a regulated utility. This leaves room for further investments without a significant increase in leverage.

Total debt at end-March 2026 was PHP 238,140 million, with cash of PHP 112,896 million. Net debt increased from end-2025 but remains within comfortable limits for the company's credit profile.

Valuation on the latest reported figures

Bottom line

In Q1 2026, PH_MER showed revenue growth of 5.5%, but EBITDA declined 5.7% due to higher costs. Net profit rose only 2.0% thanks to a one-off contribution from associates. Operating cash flow fell sharply, and with high capex, debt increased. Still, a dividend yield of 6.15% and moderate leverage (1.46) support the stock's attractiveness. The key question for holders is whether the company can restore cash flow and margins without increasing debt.