Market Skim Through: MPI, MWC, AC, DMC, hit with regulatory bad news, market recovery stunted

What bad timing by MWSS. Our market is on its path of needed recovery until this regulator unleashed a big-impact ruling. Can we expect them to adjust their schedule to the stock market? Probably not, but since MWSS board  know ahead that both MWC and Maynilad will not swallow a rate reduction, and would go to arbitration, the least that they could have done is announce that the issue will go to arbitration directly. And that the fair rates will be determined after arbitration. Unleashing a proud memo with an imposed -16% reduction in water rates is not the best direction for the multitude. After this order, the two companies now announced anyway that they will continue to charge current rates, so there's no benefit in announcing immediately reduced rates after all.

	Stock Code	Last	Change	%Change	Value
1	LMG	2.0900	-0.3900	-15.73%	2,090
2	VITA	0.7000	-0.1200	-14.63%	567,740
3	LAND	1.5300	-0.1700	-10.00%	291,420
4	MPI	4.7000	-0.4000	-7.84%	364,749,731
5	PX	9.1200	-0.7600	-7.69%	55,174,061
6	EG	0.0150	-0.0010	-6.25%	226,500
7	LCB	0.4900	-0.0300	-5.77%	10,623,370
8	MRC	0.0900	-0.0050	-5.26%	22,440
9	OPM	0.0180	-0.0010	-5.26%	3,985,900
10	ORE	1.4500	-0.0700	-4.61%	132,070
11	DMC	46.2500	-2.1500	-4.44%	42,961,425
12	ROX	2.4000	-0.1000	-4.00%	78,200
13	MWC	31.0000	-1.1500	-3.58%	123,876,820
14	BDO	72.5000	-2.5000	-3.33%	224,559,549
15	MAB	0.0290	-0.0010	-3.33%	1,067,000
16	AGF	2.3900	-0.0800	-3.24%	125,140
17	HI	6.1100	-0.2000	-3.17%	227,088
18	DIZ	5.1000	-0.1500	-2.86%	220,735
19	ABSP	31.8000	-0.9000	-2.75%	16,434,380
20	DMPL	25.8000	-0.7000	-2.64%	10,511,185

Although the sword is hanging on MWC and Maynilad's heads since two months ago, when activists and some politicians took up the popular issue (regarding why the two concessionaires are passing on the VAT that they pay to consumers), the announcement still came up as a surprise.It negatively jolted the prices of four important index issues.

AC was on its way to a respectable increase, MPI on a gradual run-up, DMC being supported by buy-ups of the Consunjis, and MWC part of a group that is also recovering, but all four promptly went down after lunch when the disclosure was put up. MPI went down -7.84% in closing, behaving like a bazur. 

I wont argue here whether the ruling is right or wrong. That should be answered by what's written in the concession agreement. At this point, the arbitration needs to move fast. If it's proven that the government changed rules in the middle of the game, they should retract promptly.  If it's decided on the other hand that it's not right for company taxes to be passed on to our water bills, MWC and Maynilad would have to look hard at the viability of the infrastructures they are planning for the future. The rate reduction will impact their top line by a huge -16% in one go. The reduction/pain will not be gradual.

At our end, as consumers, I think everyone can say that water pressure in our homes improved vastly from when everything was still being handled by MWSS. And the cost of electricity is the more painful utility than water.

As a stock market participant, we have no choice but to be hands-off on MPI and MWC. MPI in particular was in my radar the past few weeks for its cheap  valuation and price swings (a good candidate for range trading). It was a definite buy before at 4.9. What happened instead was I escaped with breakeven yesterday, and now will be waiting with one tranche buy at 4.6. If MWSS's move turned out to be another unfortunate catalyst for a downtrend, well damn damn damn, we really have to wait until Christmas to take our PSE to where it should be. Im betting is should be 7200 by yearend. But now, I think 6800 is more realistic. 

Pick of the week for Week 37: GTCAP hopefully at 750; observe VLL; GMA7 for divs???

GTCAP is the pick of the week due to the index adjustment favoring this stock. As mentioned here, Im hoping to re-enter at 750 (which served as strong support before). If not, I might enter at any-price-below-800 on Thursday.

I will also be closely watching VLL. It should announce divs soon, and would easily make 5.5 after.

GMA7 might also announce hefty divs soon, giving whoever is lucky enough to buy on the same day an instant +4%. (ABS, no chance, since it is tied up with a covenant of no-dividend higher-than-previously-set with its creditors). There is a question mark though since it is lightly-traded. GMA's price is at currently at its previous lowest/strongest support, furthermore at a cheap 14 forward P/E. But at this volume, it can still go further down. So I guess, it's whether you are willing to hold this stock until the rosy months of Dec - Feb, in case it goes further down after you buy.

All these picks are made, again, on the backdrop of volatility and low volume. Yes, we are still at that environment where +5% is heaven. Volume is low and there are up-and-down tussles even in solid companies. The aim is to just benefit the volatility, sell in a few days. In fact it is better to just stay out.

Our kinds who still participate in these conditions are probably just after that fulfilment and entertainment in getting +3-5% in days, rather than solid assured portfolio growth. For this purpose, GTCAP, VLL, GMA7 could be good picks (for short-term only) this week.

Lastly, as we've been saying since June, never all-in.

p.s. The Consunjis and the Aboitizes are known to defend their stock. I was also about to choose among DMC, AEV, AP, and SCC to take advantage of their buying. But all four already have significant increases yesterday. They might have bought already (wait for the disclosure), there might not be a quick +3% in the coming days.