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DMCI continues slide as government cancels extension of water concession deals

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THE government’s decision to revoke the extension of the concession agreements with Metro Manila’s two water providers last week led investors to sell their shares in affected listed firms, such as DMCI Holdings, Inc. which has a minority stake in Maynilad Water Services, Inc.

A total of 163.77 million DMCI shares worth P904.83 million were traded from Dec. 9 to 13, data from the Philippine Stock Exchange showed, making it the ninth-most actively traded stock last week.

DMCI shares closed at P5.55 apiece on Friday, down 8.3% from P6.05 a week ago. Year to date, the stock’s share price slipped by 56.6%.

“The primary reason for DMCI’s decline was Maynilad’s issues with the current administration, which worsened when the water concessionaire’s contract extension from 2022 to 2037 was revoked,” said Philstocks Financial, Inc. Senior Research Analyst Japhet Louis O. Tantiangco in an e-mail.

While Metro Pacific Investments Corp. (MPIC) holds the majority of economic interest in Maynilad with 52.8%, DMCI has a 25.24% stake, followed by Marubeni Corp. (20%), and other shareholders (1.96%).

“For the past five years, water service has been contributing an average of 15.6% to DMCI’s bottom line. Maynilad is still a significant part of DMCI’s portfolio and so by taking away the contract extension, DMCI’s fundamental prospects have also been negatively affected,” he added.

In a hearing at the House of Representatives on supposed onerous provisions in water companies’ contract with the government last Tuesday, state agency Metropolitan Waterworks and Sewerage System (MWSS) said that its board of trustees had revoked resolutions issued in 2008 and 2009 that approved the extension of the concession of Maynilad and Manila Water Company, Inc. until 2037, which was agreed even before the end of the original term in 2022.

The extension was approved on Aug. 16, 2008 for Manila Water, and on Sept. 10, 2009 for Maynilad. The original concession agreement was signed in 1997 during the term of President Fidel V. Ramos between MWSS, which owns the franchise, and Ayala-led Manila Water and Maynilad, which at that time was led by the Lopezes’ Benpres Corp. and its French partner. Maynilad, at that time incurring losses, was inherited by its new owners after it was re-bid by the government in 2007.

Officials of Maynilad and Manila Water also said last Tuesday that they were willing to waive separate arbitral awards given to them recently by the Permanent Court of Arbitration in Singapore at P3.4 billion and P7.39 billion, respectively. The two water concessionaires also decided not to increase rates in January, as otherwise scheduled.

The development sent share prices of the concerned listed firms falling by more than 13% to multi-year lows. In the case of DMCI, which owns a fourth of Maynilad, its closing share price fell 13.39% to P5.11 each, the lowest in more than nine years or since its closing share price of P4.82 on Sept. 8, 2010.

“After breaking down from P6 [per share] at the start of the week, the stock started rebounding upon touching P5 [per share] last Wednesday,” Timson Securities, Inc. Head of Online Trading and Trader Darren Blaine T. Pangan said in a mobile message.

Mr. Pangan also noted that bargain hunting last Friday increased the stock’s price by 9.9% to P5.55 from the previous day’s close of P5.05 per share.

Philstocks’ Mr. Tantiangco shared this assessment: “DMCI’s share is already at oversold levels making it a good candidate for bargain hunting.”

“At the same time, overall market sentiment [last Friday] was optimistic amid the latest developments on the US-China [trade] negotiations. The positive tone of the market today gave a boost to DMCI’s share price,” he added.

DMCI’s attributable income in the nine months to September fell 10.9% to P9.31 billion from P10.44 billion in 2018’s comparable nine months.

Net income contributions from Maynilad improved by 6% to P1.57 billion during the nine months. It accounted for 16.9% of DMCI’s core net income, the third-highest following Semirara Mining and Power Corp.’s P4.66 billion and DMCI Project Developers, Inc.’s P1.8 billion.

“We’re expecting a lower net income for 2019 compared to last year. The main drag to DMCI’s earnings this year would be the power-generating segment of Semirara, which was challenged by the lower average selling price of power and plant shutdowns. On the other hand, the subsidiary’s coal mining operations could partially offset the lower contributions of the power generating arm amid stronger coal sales,” Philstocks’ Mr. Tantiangco said.

Mr. Tantiangco placed the stock’s immediate support at P5 and resistance at P8.

For Timson Securities’ Mr. Pangan: “Psychological resistance level may be at P6.00-P6.10 while psychological support may be at P5.00 where the stock recently bounced from.” — Jobo E. Hernandez





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