T HU 10 N O V 2016

MANILA WATER COMPANY:

9M16 net income up 5.8% on higher earnings
contribution from subsidiaries
9M16 earnings up 5.8%, above COL forecast. MWC’s net income reached Php1.7Bil in 3Q16, SHARE DATA
up 10.6% y/y due to a 4.4% increase in total billed volume. This brought the 9M16 net income
to Php4.9Bil, up 5.8% compared to the Php4.6Bil registered in 9M15. The result outperformed
Rating HOLD
Ticker MWC
both COL and consensus estimates, at 84.7% and 81.4% of full-year forecasts respectively. The
Fair Value (Php) 26.30
outperformance in net income was due to the higher than expected equity share in net income of
associates accounting for 81% of COL forecast and lower than expected net interest expense, which Current Price 32.45
accounted for only 57%. Upside (%) -18.95

Manila Concession’s billed volume growth offsets reduction in tariff. Manila Concession
revenues in 3Q16 were almost unchanged at Php3.8Bil. This brought revenues in 9M16 to Php11.3Bil, SHARE PRICE MOVEMENT
also flat compared to the Php11.2Bil recorded in the same period last year. Despite the 3% reduction
130
in average tariff, Manila Concession revenues were able to stay unchanged y/y due to a strong billed
volume growth of 4.1%. Likewise, net income contribution for 9M16 was also flat, increasing by just 120

1% y/y to Php4.1Bil. 110

Significant growth from Non- Manila Concession units. Non-Manila concession subsidiaries and 100

associates contributed approximately Php688Mil to 9M16 net income, up 61.1% y/y compared to 90
the Php427Mil registered in 9M15. All net income from subsidiaries and associates increased y/y
with the exception of Clark Water, which declined by 37.3% due to higher systems cost and higher 80
10-Aug-16 10-Sep-16 10-Oct-16 10-Nov-16
interest expense from additional loans. Cebu Water and Boracay water were the major drivers of MWC PSEi

growth as their net income increased by 90.3% and 59% y/y respectively. In addition, estate water
registered Php160Mil net income in 9M16, its first nine months of operations.

Estimates under review. We will be reviewing our estimates on MWC in light of the strong growth ABSOLUTE PERFORMANCE
of its subsidiaries and good prospects for estate water. We currently have a HOLD rating on MWC 1M 3M YTD
with a FV estimate of Php26.30/sh.
MWC 6.21 26.71 31.05
PSEi -4.65 -10.77 3.34
FORECAST SUMMARY:
Year to Dec. 31 2014 2015 2016E 2017E 2018E
Operating Revenues 16,357 16,936 17,420 18,365 19,669
% change y/y 2.7 3.5 2.9 5.4 7.1 MARKET DATA
EBIT 9,117 9,070 8,972 8,986 9,336
% change y/y -0.4 -0.5 -1.1 0.2 3.9 Market Cap 66,650.54Mil
EBIT Margin (%) 55.7 53.6 51.5 48.9 47.5
Outstanding Shares 2,053.95Mil
Net Profit 5,813 5,958 5,752 5,574 5,635
% change y/y 1.1 2.5 -3.5 -3.1 1.1 52 Wk Range 23.55 - 32.95
NPM (%) 35.5 35.2 33.0 30.4 28.6 3Mo Ave Daily T/O 94.40Mil
EPS 2.36 2.41 2.33 2.26 2.28
% change y/y 0.9 2.1 -3.3 -3.1 1.1

RELATIVE VALUE
P/E(X) 13.2 13.0 13.4 13.8 13.7
P/BV(X) 1.9 1.7 1.5 1.4 1.3 Frances Rolfa Nicolas
ROE(%) 15.5 13.7 12.7 11.4 10.7 Research Analyst
BVPS(P) 16.9 18.9 20.7 22.4 24.2 rolfa.nicolas@colfinancial.com
Dividend Yield (%) 2.6 2.6 2.7 2.6 2.5
so urce: M WC, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 E ar n i n g s A n al ysi s I M an i l a W ater C ompany

TH U 10 NOV 2016

9M16 earnings up 5.8%, above COL forecast

MWC’s net income reached Php1.7Bil in 3Q16, up 10.6% y/y due to a 4.4% increase in total billed
volume. This brought the 9M16 net income to Php4.9Bil, up 5.8% compared to the Php4.6Bil reg-
istered in 9M15. The result outperformed both COL and consensus estimates, at 84.7% and 81.4%
of full-year forecasts respectively. The outperformance in net income was due to the higher than
expected equity share in net income of associates accounting for 81% of COL forecast and lower
than expected net interest expense, which accounted for only 57%.

9M16 earnings grew on the back of a 5.2% increase in revenues to Php13.3Bil, slightly exceeding
COL and consensus estimates. Growth in revenues was attributable primarily to the continued
expansion of non-Manila Concession subsidiaries.

Exhibit 1: Results Summary

3Q15 3Q16 %change 9M15 9M16 %change % of estimates
in PhpMil COL consensus
Revenue 4,240 4,578 8.0 12,690 13,347 5.2 76.6 76.8
EBITDA 2,969 3,148 6.0 8,803 9,232 4.9 78.1 78.2
EBITDA Margin (%) 70.0 68.8 69.4 69.2
Net Income 1,569 1,735 10.6 4,606 4,873 5.8 84.7 81.4
Net Margin (%) 37.0 37.9 36.3 36.5
so urce: M WC, COL estimates, B lo o mberg

Manila Concession’s billed volume growth offsets reduction in tariff

Manila Concession revenues in 3Q16 were almost unchanged at Php3.8Bil. This brought reve-
nues in 9M16 to Php11.3Bil, also flat compared to the Php11.2Bil recorded in the same period last
year. Revenues for the first nine months fell within expectations, accounting for 76.6% and 76.8%
of COL and consensus estimates respectively.

Exhibit 2: Revenue breakdown

in PhpMil 3Q15 3Q16 %change 9M15 9M16 %change
Manila Concession 3,753 3,787 0.9 11,246 11,285 0.3
Domestic Non-Manila Concession subsidiaries 470 544 15.8 1,344 1,579 17.5
so urce: M WC

Despite the 3% reduction in average tariff, Manila Concession revenues were able to stay un-
changed y/y due to a strong billed volume growth of 4.1%. Likewise, net income contribution for
9M16 was also flat, increasing by just 1% y/y to Php4.1Bil. According to MWC, the growth in billed
volume was attributable to the 5% improvement in domestic and semi commercial accounts, with
the completion of mixed use buildings in the areas of Pasig and Marikina. To date, MWC already
implemented 80% of the scheduled tariff reduction results and yet the Manila Concession continue
to expand and post positive income.

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside 2
of the COL Financial website as these may be subject to tampering or unauthorized alterations.
 E ar n i n g s A n al ysi s I M ani l a W ater C ompany

TH U 10 NOV 2016

Exhibit 3: Billed volume growth

in Mil cubic meters 3Q15 3Q16 %change 9M15 9M16 %change
Total 175.3 183.0 4.4 515.4 538.2 4.4
Manila Concession 118.1 121.3 2.7 346.0 360.3 4.1
Boracay Water 1.1 1.2 9.1 3.3 3.7 12.1
Clark Water 3.2 3.4 6.3 9.7 10.1 4.1
Cebu Manila Water 2.1 3.2 52.4 5.8 8.3 43.1
Laguna Water 9.2 11.2 21.7 27.0 30.3 12.2
Thu Duc Water 27.5 28.5 3.6 81.8 82.4 0.7
Kenh Dong Water 14.1 14.2 0.7 41.8 43.1 3.1
so urce: M WC

Significant growth from Non- Manila Concession units

Non-Manila concession subsidiaries and associates contributed approximately Php688Mil to 9M16

net income, up 61.1% y/y compared to the Php427Mil registered in 9M15. All net income from sub-
sidiaries and associates increased y/y with the exception of Clark Water, which declined by 37.3%
due to higher systems cost and higher interest expense from additional loans. Cebu Water and
Boracay water were the major drivers of growth as their net income increased by 90.3% and 59%
y/y respectively. Cebu Water registered the highest increase attributable to the 43.1% increase
in billed volume while Boracay Water came in second attributable to the 12.1% increase in billed
volume and 17.0% increase in average tariff.

In addition, estate water registered Php160Mil net income in 9M16, its first nine months of oper-
ations. This is attributable to the take-over of 47 brownfield and 9 greenfield projects from Ayala
Land. According to MWC, they intend to introduce the estate water model to other property devel-
opers as well. Going forward, we expect higher contribution from Non-Manila Concessions units as
a result of its expansion specifically in Zamboanga, Tagum City, Davao and estate water.

Exhibit 4: Net income contribution outside Manila Concession

in PhpMil 3Q15 3Q16 %change 9M15 9M16 %change
Boracay Water 17 28 62.3 62 99 59.0
Clark Water 31 21 (31.6) 107 67 (37.3)
Cebu Manila Water 13 21 61.5 31 59 90.3
Laguna Water 51 70 36.5 137 169 23.4
Thu Duc Water 54 59 9.6 150 168 11.8
Kenh Dong Water 30 27 (10.5) 90 92 1.7
Estate Water - 88 - 160
so urce: M WC

Estimates under review

We will be reviewing our estimates on MWC in light of the strong growth of its subsidiaries and
good prospects for estate water. We currently have a HOLD rating on MWC with a FV estimate of
Php26.30/sh.

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside 3
of the COL Financial website as these may be subject to tampering or unauthorized alterations.
 E ar n i n g s A n al ysi s I M an i l a W ater C ompany

TH U 10 NOV 2016

Important Rating Definitions

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

Important Disclaimer

Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount
invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said
information may be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the
report and are subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase
or sale of a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the
companies mentioned in this report and may trade them in ways different from those discussed in this report.

COL Research Team

April Lynn Tan, CFA

VP & Head of Research
april.tan@colfinancial.com

Charles William Ang, CFA George Ching Richard Lañeda, CFA

Deputy Head of Research Senior Research Manager Senior Research Manager
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

Frances Rolfa Nicolas Andy Dela Cruz Justin Richmond Cheng

Research Analyst Research Analyst Research Analyst
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

Kyle Velasco
Research Analyst
kyle.velasco@colfinancial.com

Contact

COL Financial Group, Inc.

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Exchange Road, Ortigas Center, Pasig City
1605 Philippines
Tel No. +632 636-5411
Fax No. +632 635-4632
Website: www.colfinancial.com

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside 4
of the COL Financial website as these may be subject to tampering or unauthorized alterations.