Water utility companies seen to sustain growth this year — analysts

WATER UTILITY companies are expected to sustain growth this year due to increased demand, but regulatory decisions may pose challenges, according to analysts.

“Water companies in the Philippines may continue to experience steady revenue growth driven by increasing demand for water services due to population growth, urbanization, and industrial expansion,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message.

The increase in water demand may translate to higher revenues for water companies, he said.

He said that most of them will likely prioritize service improvement, which includes upgrading infrastructure, reducing non-revenue water, and improving customer service.

“Water utilities like power generating companies remain a dependable investment given the almost never ending for expansion and service improvement,” Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message.

For his part, Seedbox Securities, Inc. Equity Trader Jayniel Carl S. Manuel said that water companies are expected to achieve “better financial performance” in 2024.

This would likely be driven by their “strategic presence in urban areas, where competition is scarce,” he added.

“Government backing further cements their market position, while expansion into rural regions offers lucrative growth avenues, outpacing smaller providers,” Mr. Manuel said. “Investments in technology and infrastructure promise heightened operational efficiency and enhanced customer satisfaction.”

Amid expected momentum, analysts said that water companies may face challenges, particularly regarding regulatory decisions and environmental sustainability.

“Regulatory decisions regarding tariff adjustments will play a crucial role in determining profitability,” Mr. Arce said.

“Profit margins may remain relatively stable, although they could face pressures from rising operational costs, such as energy expenses and infrastructure maintenance,” he added.

In 2022, the board of the Metropolitan Waterworks and Sewerage System approved the implementation of higher rates on a staggered basis for its two concessionaires for five years starting in January 2023.

The second tranche of the approved tariffs has started earlier this year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that investments in upgrading water pipes may be costly and may lead to revenue losses.

He said, however, that it is “still headed in the right direction in terms of improved financial performance and higher net income eventually.”

Manila Water Co., Inc. posted a consolidated net income of P5.59 billion for 2023, down 6%, while consolidated revenues grew by 35% to nearly P31 billion.

This was attributed to the recovery of the east zone’s commercial and industrial account and the 20% increase in revenues of the company’s non-east zone businesses in the Philippines.

For the first nine months of 2023, Maynilad registered a 46% increase in its core net income to P6.8 billion due to lower amortization resulting from the extension of the concession period.

Maynilad is managed by a joint venture among Metro Pacific Investments Corp. (MPIC), DMCI Holdings, Inc., and Marubeni Corp.

MPIC, which has a majority stake in Maynilad, is one of three Philippine units of Hong Kong-based First Pacific Co. Ltd., the others being Philex Mining Corp. and PLDT Inc.

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