Equity Research

13 May 2025

Manila Water Company, Inc.

MWC PM EQUITY: UTILITIES

Keep Buy with higher TP

Robust margins and organic expansion
Core earnings up 14% y-y, in-line with estimates Key Stock Data
MWC reported core net income of PHP3.6bn in 1Q25, up 14% y-y, and in line with our Rating Buy
Remains
forecasts (~23% of FY25F earnings), on the back of higher tariffs from the East Zone
Target Price PHP 39.00
Concession (EZ) and solid billed volume growth in Non-East Zone PH (NEZ-PH) Increased from 35.00
operations. Consolidated revenues grew 8% y-y to PHP9.5bn in 1Q25 as: 1) EZ topline Closing Price PHP 33.00
rose 9% y-y to PHP7.6bn with higher average tariffs (+13% y-y to PHP58.40/cu.m after 08-May-25
Implied Up/Downside 18.2%
the third tranche implementation of its approved rate rebasing), compensating for a
Market Cap (USD mn) 1,548.8
decline in billed volumes (-2% y-y to 126.7mn cu.m.) due to lower residential segment 3M ADT (USD mn) 0.9
consumption amid cooler weather; and 2) NEZ-PH sales grew 16% y-y to PHP2.2bn Source: Company Data, Bloomberg, BDO Securities
largely driven by increased billed volumes (+14% y-y to 31.4mn cu.m.), particularly in
Cebu Water (+69% y-y) and Tagum Water (+22% y-y), as well as the start of operations
for Laguna Aquatech in 2Q24. Higher tariffs in Estate Water (+44% y-y to
PHP96.7/cu.m.) also contributed to NEZ-PH revenue growth. Moreover, EBITDA
Research Analysts
jumped 12% y-y to PHP6.9bn with EBITDA margin expanding to 73% (from 70% in
Matthew Nathan T. Young
1Q24) on controlled expenses. Equity earnings from international investments also
[email protected]
surged 46% y-y to PHP123.9mn after the cessation of East Water losses following its
full impairment in 2024.

Focusing on margins and NEZ-PH growth opportunities

During the 9 May earnings call, management said: 1) margin expansion will continue
due to tariff increases in both EZ and NEZ-PH, along with solar energy deployments to
help lower power costs; 2) Angat dam maximization plans are also in place, which
would simultaneously improve non-revenue water of 14.1% back to the 13%-14% range
seen in 2023 and 2024; and 3) NEZ-PH will focus on organic growth by improving and
expanding its service area reach to provide access for more customers.

Maintain Buy rating and raise TP to PHP39.00

We raise our FY25F/26F earnings by 6.7%/8.1% and lift our TP to PHP39.00 as we
incorporate: 1) stronger NEZ-PH revenue growth (15%/6% vs 5%/6% previously) in
view of higher tariffs across several developments and increased billed volume
contributions from Laguna Aquatech; and 2) wider EBITDA margins (73.3%/71.9% vs
72.1%/70.7% previously) on sustained cost efficiencies. We retain our Buy rating with
our new TP still implying potential upside of ~18%. MWC is also trading at undemanding
valuations (5.1x FY25F P/E vs 8.9x peer average).

Key Financials FY24 FY25F FY26F FY27F

Revenue (PHP mn) 36,435 42,585 45,691 48,988
Net Profit (PHP mn) 14,225 16,784 17,801 19,182
Normalized EPS Growth (%) 24.7 18.0 6.1 7.8
Reported EPS Growth (%) 103.4 81.7 6.1 7.8
P/E - diluted (x) 6.0 5.1 4.8 4.5
EV/EBITDA (x) 7.2 6.2 6.1 5.8
P/B (x) 1.1 1.0 0.9 0.8
Dividend Yield (%) 3.4 5.6 6.7 7.1
ROE (%) 16.6 20.6 19.2 18.4
Net D/E (x) 1.3 1.2 1.1 1.0
Source: Company Data, Bloomberg, BDO Securities
13 May 2025 | Manila Water Company, Inc.

Income Statement
Year-end 31 December (PHP mn) FY23 FY24 FY25F FY26F FY27F
Consolidated Revenues 30,428 36,435 42,585 45,691 48,988
Cost of Services (6,750) (6,934) (7,575) (8,024) (8,498)
Gross Income 23,678 29,501 35,010 37,667 40,490
SG&A (4,044) (4,975) (5,570) (5,989) (6,434)
Equity Earnings from Associates (3,561) (3,594) 360 545 609
Other Income 984 3,085 1,406 651 611
EBITDA 20,514 25,855 31,206 32,874 35,276
Depreciation & Amortization (4,308) (5,348) (4,091) (4,343) (4,834)
EBIT 16,206 20,507 27,115 28,531 30,442
Interest Expense (3,774) (3,566) (3,263) (3,383) (3,479)
Earnings Before Tax 12,433 16,942 23,852 25,148 26,963
Income Tax (3,105) (4,134) (5,194) (5,440) (5,827)
Net Profit After Tax 9,328 12,808 18,658 19,709 21,136
Extraordinary Items 3,034 3,155 - - -
Minority Interest (277) (471) (606) (641) (687)
Preferred Share/Subordinated Debt Distributions (680) (1,268) (1,268) (1,268) (1,268)
Normalized Income 11,405 14,225 16,784 17,801 19,182

Cash Flow
Year-end 31 December (PHP mn) FY23 FY24 FY25F FY26F FY27F
Net Income Before Tax 12,433 16,942 23,852 25,148 26,963
Depreciation & Amortization 4,308 5,348 4,091 4,343 4,834
Other Non-Cash Items 8,545 7,599 844 (347) (472)
Change in Working Capital (14,216) (23,025) (22,767) (21,564) (19,030)
Net Operating Cash Flow 4,507 892 826 2,140 6,469
Capital Expenditures (1,810) (1,236) (639) (1,828) (3,184)
Operating Free Cash Flow 2,697 (343) 187 313 3,285
Acquisitions & Investments - - - - -
Increase in Other Assets - - - - -
Other Investing Activities (579) 1,951 (4,151) 1,492 389
Net Cash Flow after Investments 2,118 1,608 (3,964) 1,805 3,673
Dividends to Common (2,073) (3,370) (5,554) (7,532) (8,764)
Dividends to Minority - - - - -
Dividends to Preferred - - - - -
Change in Debt 19,325 20,597 14,000 5,000 4,000
Change in Capital Stock - - - - -
Other Financial Activities (17,429) (22,151) - - -
Net Cash Flow from Financing (177) (4,924) 8,446 (2,532) (4,764)
Increase (Decrease) in Cash 1,941 (3,316) 4,482 (727) (1,091)
Cash Beginning Balance 8,812 10,753 7,437 11,919 11,192
Cash Ending Balance 10,753 7,437 11,919 11,192 10,101

Growth y-y
Year-end 31 December (%) FY23 FY24 FY25F FY26F FY27F
Revenue 35.0 19.7 16.9 7.3 7.2
EBITDA 46.4 26.0 20.7 5.3 7.3
Net Income 120.8 24.7 18.0 6.1 7.8
Normalized EPS 126.5 35.0 17.9 6.1 7.8
Profitability
Year-end 31 December (%) FY23 FY24 FY25F FY26F FY27F
Gross Margin 77.8 81.0 82.2 82.4 82.7
EBITDA Margin 67.4 71.0 73.3 71.9 72.0
EBIT Margin 53.3 56.3 63.7 62.4 62.1
Net Margin 37.5 39.0 39.4 39.0 39.2
Return on Assets 4.4 5.6 7.3 7.2 7.3
Return on Equity 13.3 16.6 20.6 19.2 18.4
Source: Company Data, Bloomberg, BDO Securities
13 May 2025 | Manila Water Company, Inc.

Balance Sheet
Year-end 31 December (PHP mn) FY23 FY24 FY25F FY26F FY27F
Cash 10,753 7,437 11,919 11,192 10,101
Marketable Securities - - - - -
Accounts Receivable 2,905 3,489 4,083 4,381 4,698
Inventory 381 449 422 415 443
Other Current Assets 2,084 2,420 2,420 2,420 2,420
Net Property, Plant & Equipment 9,437 10,016 10,298 11,725 14,359
Investments in Associates & JVs 11,192 7,186 11,271 9,883 9,447
Service concession assets 162,217 184,257 202,432 221,084 237,105
Intangible Assets - - - - -
Goodwill 6 146 146 146 146
Other Assets 10,712 12,544 11,575 11,612 11,910
TOTAL ASSETS 209,687 227,944 254,566 272,857 290,628
Accounts Payable 18,761 20,683 20,203 21,317 22,717
Short-Term Debt 135 250 250 250 250
Current Portion of LT Debt 16,972 6,970 6,970 6,970 6,970
Other Current Liabilities 1,756 1,953 1,953 1,953 1,953
Long-Term Debt 82,276 99,212 113,212 118,212 122,212
Convertible Debt - - - - -
Other Non-Current Liabilities 19,668 21,540 21,540 21,540 21,540
TOTAL LIABILITIES 139,568 150,609 164,128 170,243 175,642
Common Equity 17,343 17,419 17,419 17,419 17,419
Preferred Stock 400 400 400 400 400
Subordinated Debt - - - - -
Retained Earnings 62,218 69,347 81,844 93,380 105,064
Other Equity & Reserves (11,053) (11,926) (11,926) (11,926) (11,926)
Treasury Stock - - - - -
Minority Interest 1,212 2,095 2,702 3,342 4,029
TOTAL LIABILITIES & EQUITY 209,687 227,944 254,566 272,857 290,628

Per Share Data

Year-end 31 December (PHP) FY23 FY24 FY25F FY26F FY27F
Reported EPS 1.75 3.56 6.46 6.85 7.39
Normalized EPS 4.06 5.48 6.46 6.85 7.39
DPS 0.62 1.13 1.84 2.22 2.35
BVPS 24.52 28.99 33.78 38.22 42.72

Valuation & Ratios

Year-end 31 December FY23 FY24 FY25F FY26F FY27F
P/E (x) 8.1 6.0 5.1 4.8 4.5
P/E - diluted (x) 8.1 6.0 5.1 4.8 4.5
P/B (x) 1.3 1.1 1.0 0.9 0.8
EV/EBITDA (x) 8.5 7.2 6.2 6.1 5.8
Dividend Yield (%) 1.9 3.4 5.6 6.7 7.1
Dividend Payout (%) 34.6 64.6 51.8 34.4 34.3
Free Cash Flow Yield (%) 3.1 (0.4) 0.2 0.4 3.8

Liquidity & Leverage

Year-end 31 December (x) FY23 FY24 FY25F FY26F FY27F
Current Ratio 0.4 0.5 0.6 0.6 0.6
Interest Coverage 4.3 5.8 8.3 8.4 8.8
D/E 1.4 1.4 1.3 1.2 1.1
Net D/E 1.3 1.3 1.2 1.1 1.0
Net Debt/EBITDA 4.8 4.1 3.9 3.8 3.7
Assets/Liabilities 1.5 1.5 1.6 1.6 1.7
Source: Company Data, Bloomberg, BDO Securities
13 May 2025 | Manila Water Company, Inc.

Fig. 1: Financial Highlights

PHP mn 1Q24 2Q24 3Q24 4Q24 1Q25 q-q % chg y-y % chg
Net Sales 8,818 9,536 9,193 9,100 9,541 4.6% 8.2%
Equitized Earnings 88 164 101 643 158 -307.0% 79.5%
COGS and Opex 2,719 3,156 2,875 3,038 2,774 -9.5% 2.0%
EBITDA (as reported) 6,187 6,544 6,419 6,705 6,925 3.2% 11.9%
Depreciation & Amortization 1,176 1,220 1,337 1,615 1,301 -24.1% 10.6%
Operating Profit/EBIT 5,011 5,324 5,082 5,090 5,624 9.5% 12.2%
Other Income/Expense 102 544 71 797 82 -872.0% -19.6%
Interest Expense 859 771 798 764 771 0.9% -10.2%
Earnings Before Tax 4,254 5,097 4,355 5,123 4,935 -3.8% 16.0%
Income Tax 1,028 1,163 1,026 916 1,229 25.5% 19.6%
Net Profit 3,226 3,934 3,329 4,207 3,706 -13.5% 14.9%
Minority Interest 102 144 140 85 143 40.6% 40.2%
Core Net Profit 3,124 3,790 3,189 4,122 3,563 -15.7% 14.1%
Source: Company data

Fig. 2: Total billed volumes Fig. 3: East Zone tariff rates

East Zone Non East Zone - PH Non East Zone - Intl Tariff rate (Php/cu.m.)

400 70
64.00
61.04
60
Billed Volume (in mcm)

300 53.30
199.9
Php/cu.m.

166.8 50
163.2 148.5
108.7
44.80
200
40
27.5 32.6 33.2 31.7 31.4
31.98 32.50
100
30
129.4 134 132.7 127.6 126.7

0 20
1Q24 2Q24 3Q24 4Q24 1Q25 2021 2022 2023 2024 2025F 2026F

Sources: Company data Sources: BDO Securities estimates

Fig. 4: NEZ – PH billed volumes

135
131.9

130 128.4
Billed Volume (in mcm)

125.0
125

120
115.9 116.2
115

110

105
FY22 FY23 FY24 FY25F FY26F

Sources: Company data, BDO Securities estimates

13 May 2025 | Manila Water Company, Inc.

Valuations and risks

Our TP of PHP39.00 implies an upside of ~18%. We derive our TP based on a DCF methodology from 2025-2047
with a WACC of 8.1%.

Key downside risks include: 1) another regulatory review of the concession agreement; and 2) problems in water
supply which could lead to lower billed volumes.

Fig. 5: Power and utilities sector estimates and valuations summary

Mkt Cap Last Price P/E (x) EPS Growth Div Yield EV/EBITDA P/B ROE
Company Ticker Rating (USD mn) 9-May-2025 FY24F FY25F FY24F FY25F FY25F FY25F FY25F FY25F
ACEN Corporation ACEN Buy 1,911.2 2.67 22.1 13.6 112.3% 62.7% 1.5% 16.7 0.7 5.1%
Aboitiz Power Corporation AP Buy 4,745.1 36.50 7.8 6.7 7.0% 16.3% 6.4% 5.8 1.3 19.4%
First Gen Corporation FGEN Buy 1,053.8 16.24 3.6 3.2 -6.5% 10.2% 2.4% 2.1 0.3 10.4%
Manila Electric Company MER Buy 11,224.4 552.00 13.8 12.5 21.6% 10.6% 4.9% 8.7 3.8 30.4%
Semirara Mining and Power Corporation
SCC Neutral 2,507.6 32.70 7.1 8.4 -29.9% -15.7% 6.1% 5.0 2.1 27.2%
Manila Water Company, Inc. MWC Buy 1,548.8 33.00 6.0 5.1 24.7% 18.0% 5.6% 6.2 1.0 20.6%
Average (excluding MWC) 10.9 8.9 20.9% 16.8% 4.3% 7.7 1.6 18.5%
Sources: Bloomberg, BDO Securities estimates, Priced as of 9 May 2025
13 May 2025 | Manila Water Company, Inc.

Disclaimer

Analyst certifications
I, Matthew Nathan T. Young, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views
about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will
be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by the BDO Group. For this purpose “BDO Group”
shall mean BDO Unibank, Inc. (“Parent Company”), its Subsidiaries and Affiliates such as, but not limited to BDO Securities
Corporation, BDO Private Bank, Inc., and BDO Capital & Investment Corporation. "Affiliates" means any entity of which more than
ten percent (10%) and less than fifty percent (50%) of whose securities or other ownership interest are directly or indirectly owned
by the Parent Company. "Subsidiaries" means any entity of which at least fifty percent (50%) of whose securities or other ownership
are directly or indirectly owned by the Parent Company.
Our rating system is a relative system indicating expected performance against the PSEi (PCOMP:IND) Benchmark. "Buy” indicates
that the analyst expects the stock to outperform the Benchmark over the next 12 months, “Neutral” in line with the Benchmark,
“Reduce” to underperform the Benchmark, and “Suspended” for a halt on company coverage to comply with applicable regulations
and/or firm policies. An analyst’s Target Price (TP), is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. The achievement of any target price may be impeded by general
market and macroeconomic trends, and by other risks related to the company or the market.

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