Macquarie: Water Safer Than Power in Philippine Utilities

Macquarie Touts Water Utilities Over Power Sector

Investment bank Macquarie has designated Manila Water Company (PSE:MWC) as its top selection among Philippine utilities, citing the water sector's superior defensive characteristics compared to the power industry. The bank also initiated coverage on Maynilad Water Services (PSE:MYNLD) with an Outperform rating, placing it as the second choice.

A Tale of Two Sectors

Macquarie's analysis highlights that water demand is more stable than electricity consumption. Water utilities benefit from a clear regulatory framework with approved rate rebasing for both MWC and MYNLD extending through 2027. This provides tariff visibility, including scheduled hikes of 11% for MWC and 3% for MYNLD in January 2026. Furthermore, their concession agreements guarantee a 12% pre-tax return on capital and adjust for inflation.

In contrast, the power sector faces regulatory headwinds. The government has suspended the Wholesale Electricity Spot Market, imposing administered pricing that can limit profitability. This affects companies like Aboitiz Power (PSE:AP) and Manila Electric Company (PSE:MER). MER also faces uncertainty in its rate rebasing discussions, with Macquarie forecasting a 17% rate cut against the company's request for a 74% increase.

Impact on Utility Stocks

Based on this outlook, Macquarie has established a clear pecking order for investors: MWC, followed by MYNLD, AP, and then MER. The preference for MWC over MYNLD is attributed to Manila Water's stronger growth potential from its international ventures, which are supported by the Razon group.

Conclusion

The report suggests that the predictable and regulated environment of water utilities offers a safer haven for investors. The sector's stability and guaranteed returns present a more attractive profile than the power sector, which currently grapples with significant regulatory and pricing uncertainties.

FAQ

Q: Why does Macquarie prefer water utilities over power utilities?
A: Water utilities offer more stable demand, pre-approved rate hikes through 2027, and a guaranteed return framework, making them a more defensive investment than power utilities, which face regulatory uncertainty and price caps.

Q: Which company is Macquarie's top pick?
A: Manila Water Company (PSE:MWC) is the top pick due to its strong defensive qualities and growth prospects from overseas ventures.

Source: Investing.com