PPWSA's 4Q16 review: earnings jump on soaring net finance income

Total subscriptions increase by 5,820 in 4Q16

• Total number of subscriptions increased by 5,820 during 4Q16, of which 5,415 were household clients, 392 commercial & industrial clients, and 20 houses “for rent to 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 4Q16, the total number of subscribers came to 309,300, up by 20,276 compared to the end of 2015 or a 7.0% YoY increase.

Total revenue declines 13.1% QoQ, 6.0% YoY

• Total revenue in the last quarter of 2016 came to KHR46.9bn, down 13.1% QoQ or 6.0% YoY. While the QoQ decline followed the previous quarter’s record-high revenue, the YoY decline came for the first time in 11 quarters and was mainly driven by a 93.6% YoY drop in income from construction services and a 27.6% YoY decrease in other incomes. The income from construction services fell sharply because the company has already completed major constructions projects in Kampong Cham and Battambang provinces. Other incomes including subscription fees dropped, despite rising total number of subscribers, due to a significant increase in the number of subscriptions from low-income households to whom from 30% to 100% reductions on subscription fee are applied.

• In 2016, PPWSA earned KHR198.2bn in total revenue, achieving only 3.6% growth compared to 2015 due to decreased additional incomes. Although the annual water sales posted a double-digit growth of 10.5%, income from construction services decreased almost 70%, undermining the overall top-line growth. 

Operating profit in 4Q16 fall sharply; margin squeezed

• In 4Q16, EBITDA plunged 35.7% QoQ or 24.2% YoY, while EBIT tumbled 53.9% QoQ or 41.3% YoY. Despite total revenue declining, total operating expense continued to swell, expanding 8.1% YoY. As expected, construction service expense fell significantly, down 15% YoY. However, it was not large enough to offset the growth of main expense items including a 14.2% YoY increase in salaries, a 46.3% YoY surge in raw material for household water connections, and a 34.6% rise in other operating expense, which were closely linked to rising number of subscriptions. With growing expenses and falling revenue, EBIT margin contracted 15.8%pt QoQ or 10.8%pt YoY to 17.9%.

• In 2016, however, the water supplier was able to achieve positive operating profit growth, although at a modest rate. EBITDA rose 4.9% YoY to KHR93.7bn, while EBIT was up 5.6% YoY to KHR57.7bn.

Earnings jump on soaring net finance income

• Net profit jumped 97.6% QoQ or 24.4% YoY to KHR20.2bn in 4Q16. In contrast to 3Q16, which saw earnings negatively affected by increasing net interest expense, the last quarter of 2016 was marked by earnings being boosted by soaring net interest income. Change in net finance income/expense is significantly related to fluctuation in foreign exchange as the company does not use any financial derivatives to hedge against the currency risk.

• Earnings fell 6.4% to KHR50.5bn, translating into an earnings per share (EPS) of KHR580 in 2016, vs KHR612 in 2015.