August 10, 2014

MWC's 2Q14 net income up 9.4% YoY

Manila Water Co Inc (MWC) reported an 8.5% YoY increase in 1H14 net profits on the back of a 6.6% rise in revenues from domestic operations and 46% increase in income contribution from overseas investments. Earnings reached P3.16b in 1H14, thus implying 2Q14 net income amounted to P1.73b, a 9.4% increase.

The east zone concession remains to be the largest contributor to profits with P2.79b (+4.7%) in 1H14 and P1.51b (+3.7%) in 2Q14. By our estimate, MWC’s non-east zone domestic operations contributed around P150m (+40%) in 1H14 and P79m (+38%) in 2Q14 while international operations contributed P173m (+45%) and P86m (+72%), respectively.

Consolidated EBITDA increased by 5.3% in 1H14 but earnings rose at a faster pace as depreciation expenses continue to drop, down 2.8% to P1.2b due to the reclassification of certain assets and reversal of certain capital expenditures booked in 2013. Moreover, capital expenditures remain subdued, a result of uncertainty over MWC’s ongoing arbitration dispute with the MWSS. Year-to-date, total capex for the east zone concession amounted to P1.85b, down 8% YoY and represents less than 40% of this year’s budget.

Our take: MWC’s share price has recovered since falling to as low as P21.40 early this year. Further gains, however, will likely be capped by lingering concerns over the outcome of MWC’s arbitration case. While hearings are currently ongoing, both parties have reportedly agreed to a November deadline for the submission of their respective summation memoranda, with the goal of securing a resolution of the case by the end of the year. – WealthSec