MER Stock Study, Post 4: MER Valuation Before the Gap Down

Home › Board Lot Warrior › Micro Harvesting › Micro Harvesting 2.0 › MH Application Series › MER Stock Study › MER Valuation

A pre-gap-down valuation of MER using normalized earnings, dividends, and scenario analysis based only on information available by July 24, 2026.

👉 Explore the full Micro Harvesting 2.0 framework

👉 Start Here | CSSC Learning Series | MH Application Series | MH Operator Journal

---

Malakas ang earnings growth ni MER, pero hindi sapat na sabihing magandang kumpanya ito. Ang mas mahirap na tanong ay kung ang presyo bago ang gap down ay may sapat bang margin of safety para sa isang regulated utility na mabilis ding lumalawak sa power generation.

Originally published: July 31, 2026 · Last updated: July 31, 2026

Links to related posts

• MER Stock Study, Post 1: MER Series Introduction
• MER Stock Study, Post 2: MER Fundamental Analysis
• MER Stock Study, Post 3: MER Technical Analysis
• MER Stock Study, Post 4: MER Valuation
• MER Stock Study, Post 5: MER Risk Management
• MER Stock Study, Post 6: MER Capital Allocation

---

Nilalaman

---

Ang Punto ng Usapan

For this reconstruction, hanggang July 24, 2026 market close lamang ang gagamitin nating impormasyon.

Ibig sabihin, kasama sa valuation base ang:

• 2025 audited financial statements;
• Q1 2026 SEC Form 17-Q;
• dividend declarations available by then;
• at historical financial results.

Hindi natin isasama sa original estimate ang first-half 2026 results na inilabas noong July 29. Gagamitin lamang iyon later bilang post-event validation.

Ang pangunahing tanong natin:

Bago nangyari ang gap down, magkano ang reasonable value range ng MER?

Hindi natin hinahanap ang isang magic number na eksaktong fair value. Ang gusto natin ay isang valuation range na sapat para makita kung:

• overpriced ba ang MER;
• fairly valued;
• o may meaningful margin of safety.

---

Ang Dating Paniniwala

Madaling i-value ang isang utility stock gamit ang dividend yield.

Tingnan ang dividend per share, pumili ng acceptable yield, at kunin ang implied price.

May silbi ang approach na iyon kay MER dahil malinaw ang dividend policy nito. Ang regular cash dividend ay katumbas ng 50% ng consolidated core net income, habang ang special dividends ay nakadepende sa available unrestricted retained earnings at free cash.

Pero hindi na sapat ang pure dividend valuation.

Ang modernong MER ay may:

• regulated distribution utility;
• power generation;
• LNG exposure;
• renewable-energy projects;
• retail electricity supply;
• engineering and other businesses;
• associates and joint ventures;
• at substantial project financing.

Ang Q1 2026 report itself separates the group into regulated distribution and several unregulated businesses across the energy value chain.

Kaya kung dividend yield lamang ang gagamitin natin, posibleng maliitin natin ang growth value ng generation assets—or balewalain ang debt at capital requirements na kasama ng expansion.

---

Ang Binagong Pananaw

Theoretically, SOTP ang best method

Ang ideal valuation approach kay MER ay Sum-of-the-Parts, o SOTP.

Sa ideal model:

• ang Distribution Utility ay iva-value gamit ang normalized regulated earnings o regulatory asset base;
• ang Power Generation and Renewables ay gagamitan ng project-level FCFF;
• ang RES and Other Services ay maaaring gamitan ng earnings or EBITDA multiples;
• at pagkatapos ay ia-adjust para sa debt, cash, minority interests at investments in associates.

Ito ang pinaka-conceptually correct dahil magkaiba ang economics ng bawat segment.

Pero may practical limitation.

Hindi sapat ang public pre-July 24 disclosures para gumawa tayo ng full project-by-project SOTP na hindi umaasa sa maraming speculative assumptions. Maraming generation assets ang held through subsidiaries, associates at joint ventures, at hindi pare-pareho ang disclosure ng segment-level free cash flow, project debt at minority ownership.

Kaya para sa public Stock Study na ito, gagamit tayo ng:

Practical SOTP proxy using normalized consolidated earnings, supported by dividend valuation and sensitivity analysis.

Hindi ito kasing granular ng institutional model. Pero mas transparent ito kaysa gumawa ng sobrang detalyadong DCF na maraming imbentong assumptions.

---

Paano Ito Umaandar

Step 1: Establish the earnings base

Noong 2025, MER reported:

• net income attributable to parent shareholders of ₱51.13 billion;
• earnings per share of ₱45.36;
• at cash and cash equivalents of ₱109.32 billion.

Ang 2025 EPS ay mas mataas kaysa:

• ₱40.69 noong 2024;
• ₱33.74 noong 2023;
• ₱25.23 noong 2022;
• at ₱20.85 noong 2021.

Malinaw ang earnings growth trend. Pero hindi natin dapat i-project na pareho ang bilis ng growth forever.

Sa Q1 2026, ang attributable net income ay tumaas ng 4% to ₱10.83 billion, habang ang EPS ay umakyat mula ₱9.27 patungong ₱9.61.

Kasabay nito:

• bumaba ng 2% ang electricity sales volume;
• tumaas ang debt;
• at mahina ang quarterly operating cash flow kumpara sa malaking capital expenditures.

Kaya hindi natin gagamitin ang aggressive extrapolation ng Q1 earnings.

Para sa valuation, gagamit tayo ng normalized forward EPS range na:

• Bear case: ₱44
• Base case: ₱47
• Bull case: ₱50

Ang ₱47 base EPS ay bahagyang mas mataas sa 2025 reported EPS na ₱45.36, pero hindi kasing aggressive ng annualizing a strong growth assumption.

---

Step 2: Select the valuation multiple

Hindi dapat pareho ang multiple ng mature regulated utility at high-growth generation developer.

Ang regulated utility deserves a degree of stability premium because of its franchise, customer base and recurring demand.

Pero may offsetting considerations:

• regulatory risk;
• large capital requirements;
• rising debt;
• interest-rate sensitivity;
• project execution risk;
• at increasing exposure to unregulated generation.

Pagsapit ng March 31, 2026, umabot sa humigit-kumulang ₱238 billion ang consolidated interest-bearing debt, mula ₱230 billion noong December 2025. Ang additional borrowings ay pangunahing ginamit para sa investments at strategic projects.

Sa kabilang banda, may ₱112.90 billion cash and cash equivalents ang grupo sa parehong reporting date.

Dahil dito, gagamit tayo ng blended earnings multiple range na:

• 11 times for a cautious or regulatory-stress case;
• 13 times for the base case;
• 15 times for a stronger growth and stable-regulation case.

Ang range na ito ang practical proxy natin para sa pinaghalong value ng stable DU at faster-growing generation businesses.

---

Primary Earnings-Based Valuation

Bear Case

Normalized EPS: ₱44
Applied multiple: 11 times

Implied fair value:

₱484 per share

Ito ang case kung:

• humina ang earnings growth;
• magkaroon ng regulatory pressure;
• tumaas ang financing burden;
• o mag-demand ang market ng mas mataas na risk premium.

Base Case

Normalized EPS: ₱47
Applied multiple: 13 times

Implied fair value:

₱611 per share

Ito ang case kung:

• modest ang earnings growth;
• stable ang distribution earnings;
• nagpapatuloy ang generation contribution;
• at manageable ang debt and execution risks.

Bull Case

Normalized EPS: ₱50
Applied multiple: 15 times

Implied fair value:

₱750 per share

Ito ang case kung:

• matagumpay ang generation expansion;
• nananatiling supportive ang regulatory environment;
• lumalakas ang earnings mix;
• at willing ang market na magbigay ng premium multiple.

---

Sensitivity Analysis

Mas mahalaga sa valuation ang range kaysa isang single number.

At 11 Times Earnings

Kung ang normalized EPS ay ₱44, ang implied value ay ₱484.

Kung ₱47 ang EPS, ang implied value ay ₱517.

Kung ₱50 ang EPS, ang implied value ay ₱550.

Ito ang conservative valuation range.

At 13 Times Earnings

Kung ang normalized EPS ay ₱44, ang implied value ay ₱572.

Kung ₱47 ang EPS, ang implied value ay ₱611.

Kung ₱50 ang EPS, ang implied value ay ₱650.

Ito ang central or base valuation range.

At 15 Times Earnings

Kung ang normalized EPS ay ₱44, ang implied value ay ₱660.

Kung ₱47 ang EPS, ang implied value ay ₱705.

Kung ₱50 ang EPS, ang implied value ay ₱750.

Ito ang optimistic valuation range.

What the sensitivity tells us

Ang valuation ng MER ay heavily dependent sa dalawang bagay:

1. Gaano karaming earnings ang sustainable?
2. Anong multiple ang dapat ibigay ng market sa earnings na iyon?

Kahit hindi magbago nang malaki ang EPS, maaaring bumagsak ang fair value kapag nag-contract ang multiple dahil sa higher perceived regulatory risk.

Halimbawa, sa parehong ₱47 EPS:

• 15 times gives ₱705;
• 13 times gives ₱611;
• 11 times gives ₱517.

Iyan ay halos ₱188 per share difference kahit pareho ang earnings assumption.

Ito ang mahalagang point sa nangyaring gap down.

Hindi kailangang mawala agad ang malaking bahagi ng earnings para bumagsak ang presyo. Minsan, sapat nang baguhin ng market ang multiple na handa nitong bayaran.

---

Dividend-Based Cross-Check

Dahil dividend-harvester candidate ang MER, kailangan nating tingnan ang dividend-supported value.

Ang regular dividend policy ay 50% ng consolidated core net income.

Kung gagamitin natin ang normalized EPS na ₱47 at 50% payout ratio, ang indicative regular dividend ay:

₱23.50 per share

Hindi natin isasama ang possible special dividends sa base estimate dahil hindi guaranteed ang mga iyon.

At a 3.5% Required Dividend Yield

Implied value:

Approximately ₱671 per share

At a 4.0% Required Dividend Yield

Implied value:

Approximately ₱588 per share

At a 4.5% Required Dividend Yield

Implied value:

Approximately ₱522 per share

At a 5.0% Required Dividend Yield

Implied value:

Approximately ₱470 per share

Ang dividend cross-check ay nagbibigay ng reasonable range na:

₱470 to ₱671 per share

The midpoint is around the high-₱500s.

Kapansin-pansin na malapit ito sa earnings-based base range na ₱572 to ₱650.

---

Reconciling the Two Methods

Ang earnings-based valuation ay nagbibigay ng base estimate na:

₱611 per share

Ang dividend-based cross-check, using a 4% required yield, ay nagbibigay ng:

₱588 per share

Kapag pinagsama ang dalawang reading, ang practical central fair-value zone natin ay:

₱590 to ₱610 per share

Para sa MH 2.0, gagamit tayo ng midpoint na:

Indicative Fair Value: ₱600 per share

Hindi ito exact intrinsic value. Isa itong practical valuation anchor based on normalized earnings and dividend capacity.

---

Margin-of-Safety Levels

Kung ang indicative fair value ay ₱600:

10% Margin of Safety

Buy-below reference:

₱540

15% Margin of Safety

Buy-below reference:

₱510

20% Margin of Safety

Buy-below reference:

₱480

25% Margin of Safety

Buy-below reference:

₱450

Para sa isang regulated and capital-intensive company na exposed sa policy risk, mas bagay ang 15% to 20% margin of safety kaysa aggressive 5% or 10%.

Kaya ang initial MH valuation zone ay:

Ordinary Buy-Below: ₱510
Stronger Margin-of-Safety Level: ₱480

Ito ay valuation reference lamang, hindi automatic trade instruction.

---

Valuation Reading at the July 24 Cut-Off

Ang existing MH position ay may average price net na:

₱596.386 per share

Ang average cost ay halos kapantay ng indicative ₱600 fair value.

Ibig sabihin, bago ang gap down:

• hindi mukhang grossly overvalued ang initial purchase;
• pero wala rin itong meaningful margin of safety;
• at sensitibo ito sa anumang contraction sa valuation multiple.

Sa fair value na ₱600, ang average cost na ₱596.386 ay may halos zero discount.

Kaya tama na 10 shares lamang ang hawak at 6% pa lang ang deployment.

The position was not bought at a deep bargain. It was a small visibility position near estimated fair value.

---

Ano ang Hindi Alam ng Valuation Noong July 24?

Hindi alam ng model ang specific policy catalyst na susunod.

Pero may isang risk nang nakikita sa structure ng valuation:

Malaki ang bahagi ng value na nakadepende sa market’s willingness to retain a utility-style premium multiple.

Kapag tumaas ang perceived regulatory risk, maaaring bumaba ang multiple mula 13 times patungong 11 times kahit hindi pa nagbabago ang reported earnings.

Sa ₱47 normalized EPS, ang ganitong derating ay magbababa ng implied value mula:

₱611 to ₱517

Kapag mas severe ang risk perception at ang required dividend yield ay umakyat sa 5%, ang dividend-supported value ay bababa sa paligid ng:

₱470

Kaya kahit hindi natin alam ang exact catalyst, kaya ng sensitivity analysis na ipakita na posible ang valuation zone sa high-₱400s to low-₱500s under regulatory stress.

Hindi nito eksaktong hinulaan ang gap down.

Pero ipinakita nito ang possible magnitude ng multiple compression.

---

Preliminary Valuation Conclusion

Batay sa information available hanggang July 24, 2026:

Indicative Fair Value: ₱600
Ordinary Buy-Below: ₱510
20% Margin-of-Safety Level: ₱480
Broad Sensitivity Range: ₱470 to ₱750

Ang broad range ay hindi weakness ng analysis. Reflection iyon ng tunay na uncertainty sa:

• sustainable earnings;
• appropriate market multiple;
• future dividends;
• debt;
• project execution;
• at regulatory environment.

The central reading is:

MER was approximately fairly valued near ₱600 before the gap down, but it did not offer a strong margin of safety.

That made a small probe defensible—but full deployment difficult to justify.

---

Pangwakas na Kaisipan

Magandang kumpanya ang MER. Malakas ang earnings history, malinaw ang dividend policy, at may substantial growth potential mula sa generation and renewable-energy investments.

Pero ang magandang kumpanya ay hindi awtomatikong magandang bilhin sa kahit anong presyo.

Bago ang gap down, ang market price at ang MH average cost ay halos nasa estimated fair value natin.

Walang malaking premium, pero wala ring malaking protection.

At dito naging mahalaga ang sensitivity analysis.

Hindi nito sinabi kung anong balita ang darating. Pero ipinakita nito na kapag bumaba ang acceptable earnings multiple o tumaas ang required dividend yield, mabilis ding bumababa ang reasonable value mula ₱600 papunta sa ₱500—or even high-₱400s.

Aba’y minsan, hindi earnings ang unang bumabagsak.

Ang unang bumabagsak ay ang presyong handang bayaran ng market para sa parehong earnings.

Sa susunod na post, gagawin nating mas formal ang risk-management reconstruction. Doon natin titingnan kung ang historical VaR, drawdown analysis at stress testing ay may kakayahang hulihin ang magnitude ng naging pagbaba.

---

Shariah Compliance Advisory (Updated Nov 26, 2025)

The PSE has confirmed that its Shariah screening program is currently paused, with no new lists to be released until their internal review is completed. Although news outlets reported quarterly updates up to mid-2025, these later lists are no longer accessible on the PSE website.

For now, the PSE’s Shariah-Compliant Securities page and all past lists have been removed from the public website. The December 24, 2024 list is the last official version in Micro Stock Trader’s possession, downloaded before the page was taken down, although other investors may still hold later copies such as the reported July 4, 2025 release.

All halal-focused strategies under Micro Stock Trader will use a conservative, self-screened approach until official guidance resumes, in shā’ Allāh.

• Micro Stock Trader: 2024 List of Shariah-Compliant Stocks at PSE – As of December 25, 2024

Ang post na ito ay bahagi ng aming personal learning journey sa securities analysis at portfolio governance. Ang mga konseptong may kaugnayan sa interest-based instruments, conventional bonds, preferred shares, o iba pang financial arrangements ay binabanggit lamang bilang bahagi ng academic coverage ng module at hindi bilang rekomendasyon o endorsement.

---

Disclaimer

This post is for educational and documentation purposes only. It is not investment advice. Perform your own due diligence and consult qualified financial professionals before making investment decisions. All strategies, frameworks, and examples described here reflect the personal methodologies of Micro Stock Trader and are not guarantees of future performance.

---

Micro Stock Trader Blog

Board Lot Warrior

Ang Inyong Batangueñong Retail Stock Trader

Home | About Us | Contact Us | Privacy Policy | Terms of Use | Disclaimer

WLCON Stock Study, Post 4: WLCON Valuation

Home › Board Lot Warrior › Micro Harvesting › Micro Harvesting 2.0 › MH Application Series › WLCON Stock Study › WLCON Valuation

WLCON Valuation: testing the value of a recovering retailer against margin pressure, reinvestment, and changing discount-rate assumptions.

👉 Explore the full Micro Harvesting 2.0 framework

👉 Start Here | CSSC Learning Series | MH Application Series | MH Operator Journal

---

At ₱5.68, mukhang mura ang WLCON kumpara sa dating presyo nito. Pero hindi natin puwedeng ibase ang valuation sa laki ng ibinaba lamang—kailangan nating alamin kung anong value ang nananatili kapag binago ang assumptions sa margins, growth, reinvestment, at discount rate.

Originally published: July 29, 2026 · Last updated: July 29, 2026

Links to related posts

• WLCON Stock Study, Post 1: WLCON Series Introduction
• WLCON Stock Study, Post 2: WLCON Fundamental Analysis
• WLCON Stock Study, Post 3: WLCON Technical Analysis
• WLCON Stock Study, Post 4: WLCON Valuation
• WLCON Stock Study, Post 5: WLCON Risk Management
• WLCON Stock Study, Post 6: WLCON Capital Allocation

---

Nilalaman

---

Ang Punto ng Usapan

We currently hold 30,000 WLCON shares at an average net cost of ₱6.6183.

As of the July 28, 2026 close:

Market price: ₱5.68
Net market value: ₱169,726.92
Unrealized loss: 14.52%
Current portfolio weight: 14.84%

The stock trades below our average cost, but that alone does not tell us whether it is undervalued.

A stock may fall because the market has become excessively pessimistic. It may also fall because the company’s sustainable earnings have materially weakened.

For WLCON, both forces may be present.

The company still operates a large and recognizable national retail network. Sales began recovering in 2025 and accelerated in the first quarter of 2026. At the same time, operating margins remained materially below their earlier peak, while store expansion continued to require capital expenditures and working capital.

The purpose of valuation is therefore not to produce one impressive number.

It is to answer a more disciplined question:

What range of value can WLCON support under different levels of recovery—and how much of that value survives when our assumptions become less favorable?

---

Ang Dating Paniniwala

The simplest way to value WLCON would be to take its latest earnings per share and multiply that by a price-to-earnings ratio.

Useful ang P/E. Pero mahirap itong gamitin as the primary method when current earnings are not clearly normalized.

WLCON’s net income rose strongly during the pandemic recovery and reached approximately ₱3.85 billion in 2022. It then declined to about ₱3.48 billion in 2023, ₱2.53 billion in 2024, and roughly ₱2.45 billion in 2025.

Using 2022 earnings could overstate value by assuming that peak profitability returns quickly.

Using only the weaker 2025 earnings could understate value if the recent improvement in same-store sales eventually leads to better operating leverage.

There is another complication: lease accounting.

WLCON operates a large physical-store network. Under PFRS 16, rental obligations are reflected through right-of-use assets, lease liabilities, depreciation, and lease-related interest expense.

As of March 31, 2026, WLCON reported approximately ₱7.59 billion in right-of-use assets and around ₱9.60 billion in current and noncurrent lease liabilities.

If we use raw EBITDA, debt, and interest figures without treating leases consistently, the resulting valuation can be distorted.

That is why neither simple P/E nor unadjusted EV/EBITDA is sufficient on its own.

---

Ang Binagong Pananaw

For this study, the most appropriate primary valuation method is a:

Lease-Adjusted Three-Stage FCFF Valuation

FCFF means Free Cash Flow to the Firm.

In plain terms, it estimates the cash that the operating business can generate after paying taxes and funding the capital expenditures and working capital needed to continue operating and growing.

For WLCON, we treat leases mainly as operating commitments rather than ordinary bank debt.

This allows us to:

• use lease-adjusted operating profit;
• retain rent as part of the operating cost structure;
• avoid mechanically treating all lease liabilities like conventional borrowing;
• and focus on the cash-generating ability of the retail business.

WLCON itself provides adjusted EBIT and EBITDA figures that treat lease-related charges as rent expense.

For Q1 2026, adjusted EBITDA reached approximately ₱1.15 billion, while adjusted EBIT was about ₱726 million. These represented year-on-year increases of 7.8% and 4.2%, respectively.

That gives us a cleaner operating starting point.

But because WLCON is still in a transition period, we should not rely on one forecast.

We need both scenario analysis and sensitivity analysis.

Scenario analysis asks what happens when the whole business follows a conservative, base, or stronger recovery path.

Sensitivity analysis asks what happens when one or two critical assumptions change while the rest of the model remains broadly consistent.

Parehong kailangan.

---

Paano Ito Umaandar

The Three-Stage Structure

The first stage is the recovery period, covering the years in which WLCON attempts to convert improving sales into better margins and cash flow.

During this stage, the key questions are:

• Can positive same-store sales continue?
• Can recently opened stores mature?
• Can gross margin stabilize?
• Can operating expenses grow more slowly than revenue?
• Can capex moderate without damaging the store network?

The second stage is the normalization period.

Here, the model assumes that store openings become more selective, expansion costs become less dominant, and the larger network begins producing steadier operating leverage.

The third stage is the terminal period.

This represents WLCON as a more mature retailer growing at a sustainable long-term rate rather than indefinitely repeating its earlier aggressive expansion.

The Revenue Assumption

WLCON ended 2025 with 104 stores and increased the network to 107 stores by the end of Q1 2026.

The company therefore still has new-store contributions.

But as the network grows, total sales should increasingly depend on the productivity of existing branches.

That makes same-store sales especially important.

WLCON moved from declining comparable sales in 2023 and 2024 to near-flat performance in 2025, then recorded a 4.7% increase in Q1 2026.

Our valuation does not assume that the 9.1% Q1 sales growth rate continues indefinitely.

Instead, it assumes a gradual transition from recovery-driven growth toward more moderate long-term growth.

The Margin Assumption

This is the most important valuation variable.

WLCON’s annual sales are already above ₱35 billion. On that scale, even a one-percentage-point change in operating margin can materially alter annual operating profit.

Q1 2026 sales grew strongly, but gross margin contracted by 180 basis points to 37.0%. The company attributed part of the pressure to a lower contribution from higher-margin exclusive and in-house brands.

That means revenue recovery does not automatically equal earnings recovery.

Our conservative case assumes only modest margin improvement.

The base case assumes that better same-store sales, store maturation, and expense control gradually restore operating leverage.

The stronger recovery case assumes a more meaningful improvement in product mix and store productivity—but still does not immediately return WLCON to its 2022 peak margins.

Capital Expenditure

WLCON continues to invest in:

• new stores;
• renovations;
• warehouses;
• transport and store equipment;
• information systems;
• and software.

Capital expenditure for Q1 2026 totaled approximately ₱417 million, mainly for new stores, renovations, and warehouses.

The model therefore assumes elevated reinvestment during the early forecast period.

It does not treat all accounting earnings as distributable cash.

As the network matures, capex may gradually move from aggressive expansion toward maintenance and selective growth.

But that normalization is an assumption that must be tested—not taken for granted.

Working Capital and Inventory

Inventory is one of WLCON’s largest uses of capital.

As of March 31, 2026, merchandise inventories stood at approximately ₱14.83 billion.

The company needs a broad product range to support its retail proposition, but a large inventory balance also means that revenue growth can consume substantial cash.

The valuation therefore includes working-capital requirements rather than assuming that profit automatically becomes free cash flow.

Q1 2026 operating cash flow improved significantly, partly because inventory purchases were lower.

That is positive, but we should not assume that one quarter of favorable working-capital movement becomes permanent.

---

The Valuation Scenarios

Conservative Case

The conservative case assumes that sales continue to grow, but margin recovery remains limited.

Same-store sales stay positive but moderate. Newer stores take time to mature. Gross margin remains below earlier peak levels. Operating expenses continue to absorb a meaningful share of incremental revenue, while capital expenditures and inventory remain significant.

Under this scenario, the working fair-value estimate is approximately:

₱9.50 per share

This case uses a higher required return and a lower long-term growth assumption.

It does not require WLCON to recover its peak 2022 profitability.

Base Recovery Case

The base case assumes that positive same-store sales persist, newer stores gradually become productive, and the operating expense ratio improves as the network matures.

Gross margin recovers gradually, but not fully. Capex remains meaningful in the near term before becoming more selective.

Under this scenario, the working fair-value estimate is approximately:

₱11.40 per share

This is not a prediction that the market price will reach ₱11.40 within a specific period.

It is an estimate of value under a reasonably successful but incomplete recovery.

Stronger Recovery Case

The stronger case assumes that WLCON restores a healthier product mix, improves store productivity, gains operating leverage, and reduces the proportion of cash absorbed by expansion.

Under that scenario, the valuation can rise toward:

₱16.40 per share

However, this outcome is highly dependent on better margins and stronger long-term cash conversion.

For governance purposes, we do not use this as the controlling value.

It remains an upside case that must be earned through actual results.

---

WACC and Terminal-Growth Sensitivity

The FCFF result is highly sensitive to the relationship between the discount rate and terminal growth.

The discount rate represents the return required by investors for accepting the business and market risks of WLCON.

Terminal growth represents the long-term rate at which cash flow is assumed to grow after the explicit forecast period.

When the discount rate rises, present value falls.

When terminal growth rises, present value increases.

Under a less favorable combination—such as a discount rate near 11% and terminal growth around 3%—the valuation moves toward the lower end of the conservative range.

Under a middle combination—such as a discount rate of approximately 10% and terminal growth of around 3.5%—the valuation tends to cluster around the base-recovery range.

Under a more favorable combination—such as a discount rate near 9% to 9.5% and terminal growth approaching 4%—the valuation moves materially higher.

But this is where caution matters.

A high terminal-growth assumption combined with a low discount rate can make the terminal value dominate the entire DCF.

That may produce an attractive number without requiring enough near-term operating evidence.

For MH 2.0, we therefore prefer the valuation to remain defensible even under the less favorable combinations.

That is one reason the ₱9.50 conservative case carries more governance weight than the ₱16.40 stronger-recovery case.

---

EBIT-Margin Sensitivity

For WLCON, operating-margin sensitivity is even more important than small changes in terminal growth.

If normalized adjusted EBIT margin remains around 8.5%, the valuation stays close to the lower end of the range, even if sales continue growing.

That would mean WLCON is generating more revenue but still struggling to convert it into stronger operating profit.

If normalized adjusted EBIT margin gradually improves toward 9.5% to 10%, the valuation becomes more supportive of the base case.

This would suggest that newer stores are maturing, operating costs are becoming more manageable, and the broader network is beginning to deliver operating leverage.

If normalized adjusted EBIT margin eventually rises above 10.5%, the stronger recovery case becomes more credible.

But that outcome requires visible proof.

We would want to see:

• sustained positive same-store sales;
• stabilization of gross margin;
• better contribution from exclusive and in-house brands;
• operating expenses growing more slowly than revenue;
• and stronger free cash flow after capex and inventory requirements.

This sensitivity tells us something important:

The main source of WLCON value is not simply opening more stores. It is making the larger store network more productive.

---

Reinvestment Sensitivity

A second operating sensitivity involves capital expenditures and working capital.

Suppose WLCON’s sales and EBIT recover, but capex remains permanently elevated and inventory continues to consume large amounts of cash.

In that case, free cash flow may improve much more slowly than accounting earnings.

The valuation would remain closer to the conservative range.

Suppose instead that the company slows store expansion, allows recently opened branches to mature, improves inventory turnover, and reduces the amount of incremental capital needed for every peso of revenue.

In that case, free cash flow can rise faster than net income, making the base and stronger recovery cases more credible.

This is why we cannot value WLCON using earnings alone.

The quality of the recovery depends on how much cash remains after the business funds itself.

---

The P/E Cross-Check

Based on 2025 net income of approximately ₱2.45 billion and roughly 4.10 billion outstanding shares, trailing earnings were close to ₱0.60 per share.

At ₱5.68, WLCON traded at approximately 9.5 times trailing earnings.

If normalized earnings eventually improve to around ₱0.65 to ₱0.75 per share, a cautious range of approximately 12 to 15 times earnings would support values broadly between the high-₱7 area and low-₱11 area.

That range is generally consistent with the conservative and base FCFF cases.

It provides less support for the ₱16.40 stronger case unless both earnings and market confidence recover substantially.

So the P/E cross-check confirms that the stock appears inexpensive—but it also warns us not to capitalize peak earnings too aggressively.

---

The EV/EBITDA Cross-Check

EV/EBITDA can also help us check whether the FCFF result is directionally reasonable.

But it must be lease-consistent.

We should either:

• treat leases as operating expenses and exclude lease liabilities from financial debt; or
• treat leases as financing and use pre-rent EBITDA while including lease liabilities in enterprise value.

We cannot mix the two.

For this study, we use adjusted EBITDA after treating leases as rent and avoid treating lease liabilities as ordinary bank debt.

The result suggests that the market is assigning a relatively modest valuation to WLCON’s current operating earnings.

That is consistent with a market expecting only a slow recovery rather than a quick return to peak margins.

---

Our Governing Valuation

The working valuation range is:

Conservative case: approximately ₱9.50
Base recovery case: approximately ₱11.40
Stronger recovery case: approximately ₱16.40

For MH 2.0 governance, we do not use the highest result.

We adopt the conservative estimate as the working fair-value reference:

Conservative Fair Value: ₱9.50

Applying a 20% Margin of Safety gives:

MH 2.0 Buy-Below Reference: ₱7.60

Compared with the July 28 market price of ₱5.68:

• the market price is below the conservative fair value;
• the market price is also below the buy-below reference;
• and our average net cost of ₱6.6183 remains below the ₱7.60 margin-of-safety level.

From a valuation perspective, WLCON appears undervalued under the conservative recovery assumptions.

But the sensitivity analysis changes how we interpret that conclusion.

The valuation is strongest when margins improve and reinvestment requirements normalize.

It becomes less compelling if revenue grows without corresponding improvement in operating profitability and free cash flow.

---

What This Means for the Existing Position

For the current 30,000-share position:

At ₱9.50 per share, the gross position value would be approximately ₱285,000.

At ₱11.40 per share, it would be approximately ₱342,000.

At ₱16.40 per share, it would be approximately ₱492,000.

These are valuation outcomes, not guaranteed future market values.

They do not tell us when the market may recognize the estimated value.

They also do not remove the possibility that the assumptions may need to be revised.

The most useful conclusion at this stage is:

Our average cost does not appear fundamentally impaired under the conservative working case.

That provides some valuation comfort.

But it does not prove that the current position size is appropriate.

A stock can be undervalued while the portfolio remains overallocated.

Parehong maaaring totoo.

---

Pangwakas na Kaisipan

WLCON appears inexpensive at ₱5.68—but the size of the apparent discount depends heavily on the quality of the recovery.

The conservative case asks only for modest improvement.

The base case requires sustained same-store sales growth, better expense absorption, and gradual margin normalization.

The stronger case requires much more: better product mix, improved store productivity, lower reinvestment intensity, and stronger free cash flow.

The sensitivity analysis therefore gives us a more useful conclusion than a single fair-value figure:

WLCON remains undervalued across a reasonable range of assumptions, but the size of the upside narrows materially when margins stay compressed or reinvestment remains heavy.

Our working valuation references are:

Conservative Fair Value: ₱9.50

20% Margin-of-Safety Price: ₱7.60

July 28 Market Price: ₱5.68

Average Net Cost: ₱6.6183

The valuation tells us that we do not need to treat the current unrealized loss as evidence that the business is already permanently impaired.

But valuation alone cannot authorize another purchase.

WLCON remains a large inherited position with a history of high volatility and severe deployment beyond its old working allocation.

Aba’y mura man, may sukat pa rin ang dapat ilaan.

The next post will examine how much risk the existing 30,000 shares already carry—and what conditions should govern retention, repair, or reduction.

Next: WLCON Stock Study, Post 5: WLCON Risk Management

---

Shariah Compliance Advisory (Updated Nov 26, 2025)

The PSE has confirmed that its Shariah screening program is currently paused, with no new lists to be released until their internal review is completed. Although news outlets reported quarterly updates up to mid-2025, these later lists are no longer accessible on the PSE website.

For now, the PSE’s Shariah-Compliant Securities page and all past lists have been removed from the public website. The December 24, 2024 list is the last official version in Micro Stock Trader’s possession, downloaded before the page was taken down, although other investors may still hold later copies such as the reported July 4, 2025 release.

All halal-focused strategies under Micro Stock Trader will use a conservative, self-screened approach until official guidance resumes, in shā’ Allāh.

• Micro Stock Trader: 2024 List of Shariah-Compliant Stocks at PSE – As of December 25, 2024

Ang post na ito ay bahagi ng aming personal learning journey sa securities analysis at portfolio governance. Ang mga konseptong may kaugnayan sa interest-based instruments, conventional bonds, preferred shares, o iba pang financial arrangements ay binabanggit lamang bilang bahagi ng academic coverage ng module at hindi bilang rekomendasyon o endorsement.

---

Disclaimer

This post is for educational and documentation purposes only. It is not investment advice. Perform your own due diligence and consult qualified financial professionals before making investment decisions. All strategies, frameworks, and examples described here reflect the personal methodologies of Micro Stock Trader and are not guarantees of future performance.

---

Micro Stock Trader Blog

Board Lot Warrior

Ang Inyong Batangueñong Retail Stock Trader

Home | About Us | Contact Us | Privacy Policy | Terms of Use | Disclaimer