Financial Adviser: 5 Things to Know About MVP’s Maynilad Water Services’ IPO and How to Profit from It

Maynilad Water Services, Inc. (PSE: MYNLD), the country’s largest private water and wastewater concessionaire by customer base, will make its long-awaited debut on the Philippine Stock Exchange (PSE).

MYNLD will be the second company to go public this year after it secured regulatory approvals to raise up to P33.7 billion through an initial public offering (IPO). The transaction will be one of the biggest equity listings in recent years, a development that reflects renewed investor interest in large-scale infrastructure and utility companies.

The most recent IPO of similar scale took place in March 2021, when Monde Nissin Corp. (PSE: MONDE) raised P48.6 billion, the largest in Philippine market history. That year also saw three real estate investment trusts (REITs) conduct major offerings: Filinvest REIT (PSE: FILRT) raised P11.5 billion, RL Commercial REIT (PSE: RCR) raised P21.5 billion, and Megaworld REIT (PSE: MREIT) raised P13.6 billion.

Under the offer, MYNLD will issue and sell several types of shares as part of its capital-raising plan. The company will offer up to 1.66 billion primary common shares, which are new shares that will generate fresh capital for Maynilad. In addition, 24.9 million reserved shares are allocated to First Pacific Company Limited (FPCL), Maynilad’s Hong Kong–listed parent company. This reserved portion will allow FPCL to maintain its ownership level after the IPO.

The offer also includes a 249 million-share overallotment option, often referred to as a “greenshoe option.” This provision will allow the IPO underwriters to sell additional shares if investor demand exceeds expectations. The option will serve as a price-stabilization tool, which gives underwriters the flexibility to manage supply and demand in the early phase of trading.

Furthermore, an upsize option of 354 million secondary shares will come from Maynilad Water Holding Company, Inc., one of the company’s major shareholders. If market demand proves exceptionally strong, these existing shareholders may sell a portion of their holdings, though proceeds from these secondary shares will go to the selling shareholders rather than to Maynilad itself.

If all options are exercised in full, including the 249 million-share overallotment option and the 354 million-share upsize option, the total number of shares offered to investors will increase to about 2.26 billion shares. This will raise the company’s total issued and outstanding shares to approximately 7.55 billion.

Under this scenario, the shares sold to the public will represent around 30 percent of Maynilad’s total outstanding shares after the IPO. This higher public float will not only meet but also exceed the minimum public ownership requirement under the company’s legislative franchise, which ensures broader investor participation and market liquidity.

The maximum offer price is set at P20 per share, implying a potential market capitalization of around P150 billion upon listing on the PSE. This would make MYNLD larger than Manila Water Company (PSE: MWC), which has a market capitalization of about P99 billion and shares a similar financial profile.

These projects are aligned with its long-term service obligations under its 25-year legislative franchise (Republic Act No. 11600) and the Revised Concession Agreement with the Metropolitan Waterworks and Sewerage System (MWSS), which runs until 2037 (extendable to 2047).

The offering will also see participation from lead cornerstone investors International Finance Corporation (IFC) and the Asian Development Bank (ADB), which signal institutional confidence in the company’s governance and sustainability initiatives.

Investing in an IPO is like investing in a business. It is always wise to spend time understanding MYNLD’s fundamentals, from its financial performance and regulatory environment to its long-term capital efficiency and dividend outlook. Once investors grasp these fundamentals, they will have a clearer sense of the risks and rewards that come with owning a share of the country’s largest water utility as it enters a new chapter as a publicly listed company.

Here are the five things to know about Maynilad Water Services, Inc’s IPO:

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1| Know the background of the company

Maynilad Water Services, Inc. (PSE: MYNLD) is the country’s largest private water and wastewater concessionaire in terms of customer base, serving more than 9.8 million people across the West Zone of Metro Manila and parts of Cavite.

The company provides water distribution, sewerage, and sanitation services under a concession agreement with the Metropolitan Waterworks and Sewerage System (MWSS), one of the most critical public–private partnerships in the Philippines.

Maynilad traces its roots to the 1997 privatization of MWSS, when the government awarded the West Zone concession to Maynilad. After encountering financial challenges in its early years, the company underwent a major restructuring and ownership change in 2007, when Maynilad Water Holding Company, Inc. (MWHCI) acquired control.

MWHCI is a joint venture between Metro Pacific Investments Corporation (MPIC), DMCI Holdings, Inc., and First Pacific Company Limited (FPCL)—a Hong Kong–listed investment management firm headed by business leader Manuel V. Pangilinan.

Under this new ownership, MYNLD transformed into a model of operational turnaround. It expanded its water coverage to nearly 100 percent of its concession area, increased water availability to 24 hours in most zones, and reduced system losses through advanced leak detection and pipe rehabilitation programs.

The company also developed extensive wastewater treatment facilities, becoming one of the key players supporting the government’s clean water and environmental sustainability initiatives.

Today, MYNLD manages more than 10,000 kilometers of pipelines and operates multiple water and wastewater treatment plants, making it one of Southeast Asia’s most extensive private water utilities.

With a 25-year legislative franchise under Republic Act No. 11600 and a concession agreement running until 2037 (extendable to 2047), MYNLD remains a vital institution in ensuring water security and sustainable infrastructure for Metro Manila’s growing population.

2| Know the earnings prospects of the company

MYNLD’s earnings performance over the past three years shows a clear pattern of acceleration tied to regulatory tariff adjustments, strong water demand, and improving wastewater operations.

The company’s results also reflect its ability to translate rate increases into both revenue expansion and profit growth without major cost overruns. However, a deeper look at its cash flow statements provides important context for understanding the quality of those earnings.

In 2023, MYNLD began to feel the benefits of the sixth-rate rebasing approved by the Metropolitan Waterworks and Sewerage System (MWSS). Operating revenue rose by 19.4 percent from P22.87 billion in 2022 to P27.32 billion in 2023, supported by higher water consumption and wastewater fees. The stronger revenue base translated into solid earnings growth. Net income jumped 53 percent, from P5.87 billion in 2022 to P9.01 billion in 2023, as fixed operating costs were spread over a larger customer base and financing expenses remained manageable.

In 2024, the second tranche of MWSS-approved tariffs, which is an increase of P6.26 per cubic meter, further lifted the company’s top line. Operating revenue grew 22.6 percent, from P27.32 billion in 2023 to P33.49 billion in 2024, with both water and wastewater operations contributing to the surge.

As a result, net income climbed even faster, rising 41.8 percent to P12.78 billion, supported by higher margins and stable costs. The company’s net profit margin expanded to about 38 percent from 33 percent in 2023.

This year, for the first six months of 2025, MYNLD recorded P18.35 billion in revenue, up 10.1 percent year-on-year from P16.67 billion, due to another P2.12/cu.m. tariff increase and the environmental charge hike from 20 to 25 percent effective January 2025.

Net income for the same period increased by 19 percent to P7.47 billion from P6.27 billion in the same period last year. Assuming the same seasonality ratio this year, where the first half of MYNLD contributes 50 percent of full year earnings, the company is projected to deliver P36.9 billion in revenue and approximately P15.2 billion in net income by end of the year, which represents an 18.9 percent earnings growth.

While MYNLD’s profitability expanded sharply from 2022 to 2025, its operating cash flow (OCF) presents a different picture. From 2022 to 2024, MYNLD consistently posted negative OCF despite rising net income, primarily due to large cash outflows for service-concession asset payments. This creates an apparent mismatch: strong accounting earnings but weak headline cash flow. In essence, MYNLD’s earnings quality is weaker than it appears, as much of its profit growth reflects accrual revenues that have yet to translate into operating cash flow.

Why is this so? MYNLD operates under a public–private partnership concession with MWSS, governed by PFRIC 12 (Philippine Interpretation of IFRIC 12: Service Concession Arrangements). Under this standard, infrastructure spending related to the concession, such as new pipelines, treatment plants, and network rehabilitation, is classified as part of operating activities, not investing.

In other industries, similar outlays would appear under investing cash flow, but for MYNLD, these expenditures are treated as part of its day-to-day operating obligations under the concession agreement. This classification depresses reported Operating Cash Flows even when the company collects healthy cash from customers.

Still, this pattern highlights a tight liquidity position. MYNLD’s negative operating cash flows mirror the financial strain of its extensive capital program and concession-related commitments. The near-breakeven cash flow in 2025 shows some improvement but remains limited compared with the company’s earnings growth.

This indicates that MYNLD’s profits, while solid on paper, are not fully supported by cash flow, which reflects low earnings quality driven by accounting recognition rather than actual liquidity.

Unless upcoming tariff adjustments or IPO proceeds provide relief, the company’s reported profits will likely continue to outpace real cash generation, which makes its earnings appear stronger than its underlying cash position suggests.

3| Know the financial strength and opportunities

MYNLD’s financial position shows the strength of its regulated revenues but also the strain from long-term concession commitments that require continuous reinvestment and sustained borrowing.

As of June 30, 2025, MYNLD’s current assets were P9.997 billion, far below its current liabilities of P31.676 billion. This resulted in a current ratio of 0.32×. This indicates that the company’s short-term obligations substantially exceed its readily available assets, which underscores a tight liquidity position.

Although utilities typically maintain lower liquidity buffers due to predictable monthly collections, MYNLD’s ratio below 0.50 suggests limited flexibility to absorb near-term financial shocks without additional funding support.

The company’s dependence on steady customer payments and external financing to manage working capital shows its thin short-term liquidity margin. Post-IPO, the application of proceeds to working capital is expected to partially ease these pressures.

By first half of 2025, MYNLD’s total liabilities amounted to P127.7 billion, against total equity of P76.6 billion, which results in a liabilities-to-equity ratio of 1.67×. This level of leverage emphasizes the company’s heavy dependence on external financing to sustain its capital-intensive operations and concession obligations.

However, if we focus only on interest-bearing debt, the picture appears more moderate. Total debt stood at P86.1 billion, which gives a debt-to-equity ratio of about 1.12×. Most of these borrowings are long-term, which reduces refinancing risk and provides balance-sheet stability despite limited short-term liquidity.

This financial stability has supported stronger profitability outcomes. MYNLD’s returns have strengthened steadily, as reflected in the consistent rise of its Return on Equity (ROE) since 2022. The company’s ROE increased from 9.1 percent in 2022 to 14.2 percent in 2023, and further to 17.3 percent in 2024. Based on first-half 2025 results, the full-year ROE is projected to exceed 18 percent, supported by wider profit margins and more efficient asset utilization.

4| Know the pricing multiples of the stock

It is interesting to note that MYNLD’s indicative IPO valuation places it in the same pricing range as Manila Water Company (PSE: MWC), its closest listed peer in the water utility sector.

This lack of a compelling discount may limit the stock’s upside potential, as most of its growth prospects under the concession appear to be already reflected in the offer price.

At the maximum IPO price of P20 per share, MYNLD’s implied market capitalization is approximately P150 billion. Based on its annualized 2025 projected net income of P15.2 billion, the company’s prospective Price-to-Earnings (P/E) ratio stands at about 9.9×. This valuation puts MYNLD slightly above MWC, which trades at around 9.6× forward earnings.

Although both operate under the same regulatory framework, MYNLD appears to command a premium over MWC because of its larger service coverage and higher returns, particularly its 2024 ROE of 17.3 percent.

However, this higher return must be viewed in context. MYNLD’s liquidity position is much weaker than MWC’s, with a current ratio of just 0.32×, compared to MWC’s healthier 0.71× as of June 2025. The stronger liquidity of MWC makes it less risky from a short-term financial standpoint.

Furthermore, MYNLD’s ROE is expected to decline after the IPO once its equity base expands from the P33.7 billion capital infusion. On a pro forma basis, the company’s ROE could fall from 17.3 percent to around 12 to 13 percent, bringing it closer to MWC’s average ROE of 13 percent.

Therefore, valuing MYNLD nearly at parity with MWC, despite the expected dilution in returns and weaker liquidity cushion, makes the IPO pricing appear fully valued, if not slightly expensive.

The current premium suggests that investors are already pricing in the benefits of future expansion and efficiency gains, which leaves limited room for multiple expansion unless earnings grow faster than expected.

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio gives a cleaner picture of operating valuation by excluding the effects of taxes, financing, and accounting choices.

At the IPO price, MYNLD’s market capitalization stands at about P150 billion. Adding total debt of P86 billion and adjusting for P36 billion in post-IPO cash (P2.7 billion existing plus P33.7 billion proceeds), its enterprise value is approximately P200 billion. Based on its annualized first-half 2025 EBITDA of P26.7 billion, this translates to an EV/EBITDA multiple of about 7.5×, a valuation that places MYNLD nearly on par with Manila Water’s 7.2× multiple at current market prices.

At this level, MYNLD appears to be fairly valued, which suggests that there is limited incentive for further upside at the offering price.

5| Know the intrinsic value of the stock

It has been said that a company creates value for its shareholders when it generates a return on invested capital (ROIC) that is higher than its weighted average cost of capital (WACC). The higher the residual spread between a company’s ROIC over its WACC, the higher the share price of the stock should be, as reflected in its Enterprise Value (EV) to Invested Capital (IC) ratio.

In theory, the ratio of ROIC-to-WACC should be equal to the EV-to-IC ratio so that when a stock’s ROIC-to-WACC is higher than its EV-to-IC ratio, it means that the stock is undervalued, and vice versa.

If we apply this theoretical valuation framework to MYNLD, we find that the company’s ROIC stands at 8.5 percent, against its estimated WACC of 6.5 percent.

This means MYNLD is generating returns roughly 200 basis points above its cost of capital, a healthy indicator that it is creating economic value for its investors. An ROIC higher than WACC signals that the company’s operations are productive, and every peso invested in its capital base yields more than its financing cost. If we take the ratio of ROIC to WACC, we derive a multiple of 1.31×

At the IPO offer price of P20 per share, MYNLD’s projected Enterprise Value amounts to approximately P200 billion. Comparing this with its invested capital of P160.3 billion, we get an EV-to-IC ratio of 1.25×.

This means that at IPO of P20 per share, the stock is valued at 25 percent above its invested capital, roughly matching the company’s ability to earn about 30 percent more than its cost of capital. In other words, MYNLD appears fairly valued where the current IPO price already reflects the company’s expected value creation without leaving much room for additional upside unless earnings accelerate further or capital efficiency improves.

If the final offer price remains at P20 per share, MYNLD’s IPO valuation leaves no meaningful upside for investors. At that level, the stock’s EV-to-IC ratio (1.25×) already matches its ROIC-to-WACC multiple (1.31×), which indicates that its expected returns are fully reflected in the offer price.

In this case, investors may be better off waiting for the stock to list and accumulate it at a discount once secondary market trading begins. However, if the final price is adjusted below P20, every peso of reduction represents an increasing margin of safety.

For instance, at P15 per share, the implied EV-to-IC ratio falls to about 1.07×, which is 18 percent below its ratio at P20 and comfortably beneath its ROIC-to-WACC multiple of 1.31×, which signals potential upside. In essence, the lower the offer price, the lower the EV/IC and the greater the likelihood of capital appreciation, with P20 per share serving as the fair-value benchmark where the stock’s valuation merely equals its expected return profile.

Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice hong@financialadviser.ph or follow him on Twitter @henryong888