PPWSA's 4Q17 review: net profit plunges on forex loss

Water subscription sees stable increase in 4Q17

• Water subscription continued to see stable increase in 4Q17 with 5,900 additional subscribers during the period. The total number of subscribers reached 333,288 at the end of 2017, a 7.22% growth compared to the end of 2016. Of these, 271,317 are household clients (81.41% of total), 55,899 commercial & industrial clients (16.77%), 5,397 houses for rent to garment workers (1.62%), and 675 other clients (government institutions, water distributors, and autonomous state authorities).

• In 2017, PPWSA provided water connection to 22,453 additional subscribers. Subscription classified as houses for rent to garment workers saw the biggest growth, rising 11.23%. This was followed by subscription classified as households which increased by 8.07%.

Top line surges 37% YoY to record high

• The total revenue in 4Q17 surged 37.0% YoY to a record high of KHR64.28bn. While core water sales continued its modest growth of 6.4% YoY, income from construction service and other incomes skyrocketed. Income from construction service came to KHR1.26bn in 4Q17, up from KHR0.20bn in 4Q16. Meanwhile, other incomes, which include service fees from replacement of water meter and other spare parts, reached an all-time high of KHR15.96bn in 4Q17, up from just KHR2.51bn in 4Q16.

• In 2017, revenue totaled to KHR232.89bn, posting a solid increase of 17.5% compared to a year earlier. Driven by additional subscriptions and growing household and industrial demand as a result of rising economic activities, core water sales achieved a sustainable growth level of 8.02%, rising to KHR193.36bn. On the other hand, income from construction services almost doubled to KHR10.74bn thanks to the water-pipeline construction project in Kampot province.

EBITDA in 4Q17 more than doubles; EBIT more than triples

• Between October and December 2017, total operating expense declined by 2.5% YoY mainly due to 96.4% YoY drop in construction service expense, 27.9% YoY decrease in expense related to repair & maintenance, and 26.4% YoY fall in expense on raw materials for household water connections. As a result, EBITDA more than doubled to KHR35.86bn in the fourth quarter of last year from KHR17.51bn during the same period in 2016. In addition, since depreciation and amortization rose modestly by only 0.4% YoY, EBIT tripled to KHR26.69bn.

• Last year, with the robust revenue growth and the modest increase in total operating expense, operating profit reached its record high. EBITDA reached KHR116.46bn (+24.6% YoY), while EBIT amounted to KHR79.49bn (+38.2% YoY).

Net income plunges on forex loss

• As net interest income changed from positive KHR14.37bn to negative KHR2.96bn as a consequence of the fluctuation in forex gain or loss associated with borrowings in foreign currency, pre-tax profit in 4Q17 increased only 4.3% YoY despite more than 200% jump in EBIT. Net income in the last quarter of 2017 declined 47.9% YoY to KHR10.54bn due to a high income tax expense.

• Although operating profit reached a record high, PPWSA’s full-year net income plunged 33.9% to KHR33.31bn in 2017 from KHR50.43bn in 2016. As mentioned above, this was due to two main factors: (1) the change from forex gain to forex loss on borrowings; and (2) the high income tax expense paid during the year.