Manila Water Company, Inc. is the sole water provider in the East zone of Metro Manila. It is owned by the country’s oldest conglomerate Ayala Corporation along with British and Japanese investors. It has been in existence since January 6, 1997 but has started its operation on January 1, 2000. Latest news updates have revealed that Ayala Corporation and its subsidiaries, especially Ayala Land Incorporated, have decided to increase its capital expenditure (CAPEX) to a surprisingly large amount this 2018. In fact, it’s considered an all-time high over the years. Truly, Ayala sees great potential in the market. It believes that there’s still a large portion of the market that needs to be touched and demands to be met. And since competitions between the “big giants” are tight, it should always aim to introduce innovative ideas while sticking to its branding as well as its objectives and long-term goal of profitability.
Right now, its subsidiary Manila Water, has taken a great leap to take action in its objective of playing in the international market. It recently signed a share purchase agreement with a Thailand-based water services firm named Eastern Water Resources Development and Management Public Co. Ltd. in acquiring an 18.72% stake of the said company. Manila Water’s President and CEO Ferdinand Dela Cruz shares that this is good news since the company sees this engagement as an entry point or small step in its expansion project in Southeast Asia. It is also in line with its internationalization strategy of the company. Manila Water and its investors need not worry since expected future growth and support will come from Thailand’s government initiative in further developing its eastern seaboard into a leading economic zone in the Association of Southeast Asian Nations (ASEAN).
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Eastern Water provides raw and tap water supply to the eastern region of Thailand which is home to heavy industries involved in automotive, electronics and petrochemicals. The company also provides water supply to three provinces in Thailand and currently has concession contracts to operate in 11 locations.
Previously, Manila Water has already embarked in water and concession projects in Vietnam and also pilot projects in Indonesia for non-revenue water reduction program in Myanmar for leakage reduction. It is worth noting that the company is slowly penetrating the market not only domestically but also internationally. Apart from the domestic business it currently holds, projects and investments made outside the country can pose a high risk but a positive outlook can be taken that a reasonable return can be expected from it.
The question now lies: Where will the company get its fund for the said share purchase agreement? Manila Water shared that it will finance the said stock purchase from internally generated funds and bank debt. Generally, this will temporarily affect the cash flow statement of the company but rest assured, projections have been made by its finance officers with regards to future growth/increase in its revenue and bottom line figures.
Based on the moving averages, the stock is still bearish even if the expansion plan is good for the company over the long term. Looking at the longer moving average the stock needs to breakout from 30 to have a shot at reversing and going up. To position traders, that would be the best time to come in knowing that the stock has started to reverse up. Until that time happens, it would be best to stay away from the stock first.
From a quick trading stand point, the stock’s support is at 27.3, buy the stock as long as it bounces at 27.3 and set your target price to 32.6. If 27.3 does not hold though, the next drop for MWC would be at 26.25.