FRI 29 NOV 2019

MANILA WATER COMPANY

MWC wins arbitration case

against government
MWC wins arbitration case against government
HOLD
In a disclosure to the PSE, MWC announced that the Arbitral Tribunal has ruled that MWC TICKER: MWC
has a right to indemnification for actual losses suffered on account of the Republic of the PHP22.70
Philippines’ breach of obligation. Recall that MWC filed an arbitration case against the
government over failure to reimburse losses after the MWSS imposed a rate cut on the
company. Note that the rate cut stemmed from the decision that corporate income tax
cannot be recovered from consumers. As such the Tribunal ordered the government to
indemnify MWC the amount of Php7.4Bil representing actual losses suffered from June
1, 2015 until November 22, 2019 and pay 100% of the amounts paid by MWC to the
Permanent Court of Arbitration and 85% of the company’s other claimed costs.

This development bodes well for MWC as this will allow it to recover forgone revenues
from the tariff clawback implemented from 2015 to 2017, and other costs paid in relation
to the arbitration. However, it remains unclear whether the company will now be able to
adjust its tariffs to pass on its corporate income tax to consumers moving forward. Note
that the current tariff adjustments does not include recovery of the corporate income tax.

Maintain HOLD rating

We currently have a HOLD rating and FV estimate of Php22.7/sh on MWC. Despite this Frances Rolfa Nicolas
positive development, other issues such as adequacy of water supply and penalties related Research Analyst
rolfa.nicolas@colfinancial.com
to the Clean Water Act continue to haunt the company. Moreover, it may take time before
the company be able to enforce and collect the award from the government.

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 ALERT I MWC: MWC WINS ARBITRATION CASE AGAINST GOVERNMENT

FRI 29 NOV 2019

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.

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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

JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG

SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

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