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Water utility posts profit, but shares stagnant

The offices of the Cambodian Stock Exchange (CSX) in Phnom Penh.
The offices of the Cambodian Stock Exchange (CSX) in Phnom Penh. Heng Chivoan

Water utility posts profit, but shares stagnant

The capital’s listed water utility reported strong growth of earnings and profit in 2015, yet failed once again to impress investors, with its share price refusing to budge during yesterday’s low-volume trading session.

Total revenue of Phnom Penh Water Supply Authority (PPWSA) grew 22 per cent and its net profit grew 16 per cent last year, the utility reported in a financial statement posted on the Cambodian Stock Exchange (CSX) ahead of trading yesterday. It said total revenue topped the equivalent of $47.9 million in 2015 while generating $13.3 million in profit.

Fourth quarter earnings showed increasing profitability, with revenue up 20.9 per cent and net profit up 25.6 per cent, compared with the same period a year earlier.

While in most markets a glowing financial statement would elicit a positive share price movement, PPWSA finished yesterday’s trading session exactly as it had started, at 4,800 riel per share.

Sim Sitha, director general of PPWSA, said the utility’s performance has improved year after year as a result of increasing income from sales and a larger branch network.

He remains optimistic that the utility’s solid performance will reflect on its stock price, though suggested external factors could be weighing it down.

“Based on our good performance, as an operator we expect our stock’s price to grow, but we need to assess other factors as well,” Sitha said, citing as examples stock market sentiment and the global economic situation.

Lamun Soleil, director of market operations at CSX, said that usually when a listed company performs well and makes a profit, its share price goes up. He added that perhaps because PPWSA’s financial report was just released, investors had not had time to react or initiate trades.

“For international stock markets, positive or negative reports will have an immediate impact on a stock’s price as investors base [their actions] on that information,” he said. “But for our market, the reaction might be slower as our investors do not follow market information closely yet.”

Thomas Hugger, CEO and fund manager of Asia Frontier Capital, said general investor interest in Cambodia’s capital market remains small, and stocks often do not respond to the release of new financial data.

“It seems to be a common phenomenon in frontier markets that stocks many times do not react immediately on earnings news like in developed markets,” he said.

Hugger noted, however, that due to the high valuation of PPWSA earnings announcements were likely to have a smaller impact on its share price.

“PPWSA is in our view overvalued,” he said. “The stock trades at a P/E of 30.2x, which is very high for a utility stock.”

By comparison, he noted, Philippine water utility Manila Water Company trades at a P/E of 11.2x while offering investors a significantly higher return on equity and other perks.

In a previous version of this story we quoted Asia Frontier Capital’s Thomas Hugger as saying PPWSA was trading at a P/E of 30.2x, far above other utility stocks and hence overvalued. While this was historically true in 2012, he has confirmed that the current P/E ratio – calculated as the current share price of 4,800 riels divided by earning per share of 611.55 riels – is in fact 7.84x.

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