PPWSA's 3Q16 review: earnings decline as net finance cost soars

Total subscriptions see stable increase

• PPWSA acquired 4,837 new subscriptions during 3Q16: 3,972 from household clients, 816 from commercial & industrial clients, and 37 from houses for garment workers. The increase in total subscriptions was quite stable, with the company gaining more than 4,000 new clients per quarter at least over the last two years. At the end of 3Q16, the total number of subscribers came to 303,480, up 14,456 compared to end of 2015 or a 5.0% increase YTD.

Top-line grows in double-digits for first time in three quarters

•  With subscriptions continuing to increase steadily, total revenue (excluding finance income) in 3Q16 reached a record-high of KHR54.0bn (+10.5% YoY), posting double-digit growth for the first time in three quarters (+7.9% YoY in 1Q16 and +2.6% YoY in 2Q16). Strong revenue growth in the third quarter was driven by a 15.1% YoY rise in core water sales and a 108.7% YoY jump in other income thanks to strong sales of water meters and other spare parts. Meanwhile, the additional income from construction services continued to decline by 68.2% YoY, as the company has completed major constructions projects in Kampong Cham and Battambang provinces
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• In the first nine months of 2016, PPWSA’s total revenue came to KHR151.3bn, rising only 7.0% YoY due to less additional income. While core water sales’ share of revenue  expanded by 5.1%pt YoY from 84.0% to 89.1%, the share of construction services decreased from 10.5% to 3.5%. 

Operating profit in 3Q16 surges 36.6% YoY

• Gross profit in 3Q16 climbed 20.1% YoY, while EBTIDA surged 23.5% YoY thanks to a 6.8% YoY drop in the cost of goods sold, as a result of a significant decrease in expense related to construction services. With depreciation and amortization rising slightly by 3.5%, EBIT surged 36.6% YoY to KH18.2bn, registering a margin of 33.7% (+6.4%pt YoY). Over Jan~Sep 2016, EBITDA rose 13.7%YoY and EBIT 19.7% YoY to KHR49.3bn. 

Earnings decline as net finance cost soars

• Despite an improvement in business operations evidenced by solid growth in revenue and operating profit, PPWSA’s profitability was largely affected by increased finance cost. With net finance cost soaring by more than KHR5.4bn, pre-tax profit fell 4.4% YoY to KHR12.8bn, while net profit dropped 3.8% YoY to KHR10.2bn in 3Q16. The change in net finance cost is closely linked to fluctuations in foreign exchange, as the company does not use any financial derivatives to hedge against currency risk. Over Jan~Sep 2016, net profit plunged 23.1% YoY, driven by the KHR19.6bn increase in net finance cost.