PPWSA's 3Q17 review: net profit declines 20% YoY as expenses increase

Water subscription continues to see stable increase in 3Q17

• Water subscription continued to see stable increase in 3Q17 with 5,616 new clients subscribing during the period. Total number of subscriptions reached 327,388 at the end of September, up 5.8% compared to the end of last year. Of these, 266,412 are household clients, 55,257 commercial & industrial clients, and 5,027 houses for rent to garment workers. During the first nine months of the year, household clients rose solidly by 6.7%, while commercial & industrial clients and houses for rent to garment workers were up 2.1% and 4.9%, respectively.

Top line rises modestly in 3Q17

• The total revenue between July and September came to KHR54.25bn, up 0.5% compared to the same period last year. The modest increase was due to a significant drop in other incomes. Core water sales rose 4.4% YoY, and income from construction services was up 5.8% YoY. Meanwhile, other incomes, which include service fees from replacement of water meter and other spare parts, decreased by 32.9% YoY.

• However, the total revenue for the first nine months of 2017 posted a robust growth of 11.5% YoY, reaching KHR168.61bn. Core water sales rose 8.5% YoY to KHR146.29bn, while income from construction services jumped 81.7% YoY as the company has been involved in a water-pipeline construction project in Kampot province since the start of the year.

EBITDA drops 9.5% YoY ; EBIT falls 15.1% YoY

• In the third quarter of the year, revenue growth was modest, while cost showed no sign of decline. Total operating expense rose 8.4% YoY, driven mainly by 11.9% YoY increase in electricity, 10.3% YoY rise in salaries, and 63.5% surge in expense on repair and maintenance. As a result, EBITDA in 3Q17 dropped 9.5% YoY to KHR62.64bn, and EBITDA margin narrowed 5.0%pts YoY. Moreover, EBIT fell even more by 15.1% YoY to KHR15.43bn as depreciation and amortization also increased.

• Nevertheless, thanks to the robust revenue growth in 1H17, the first nine months of 2017 saw EBITDA and EBIT increase 5.8% and 7.0% YoY to KHR80.61bn and KHR52.79bn, respectively.

Net income declines 20% YoY on rising expense

• Net income declined 19.7% to KHR8.22bn in 3Q17 from KHR10.26bn in 3Q16. Despite modest revenue growth, total operating expense continued to rise significantly in 3Q17.

• Between January and September, net income came to KHR22.7bn, a 24.8% decrease compared to a year earlier. Net income growth during the first nine months turned out to be negative despite positive EBIT growth due to jump in net interest expense. This was due to the significant foreign exchange loss on borrowings.