What is PBA worth? (Part 5) dated 24th Dec 2017
Since I last write about PBA on 25th May 2017, two significant events had occurred.
1st was the political game play by Lim Guan Eng, PBA Holdings Bhd chairman and Datuk Liang Teck Meng, SPAN chairman. This result in the water conservation surcharge (WCS) increase from RM0.48 to RM1.00 (increase of RM0.52) still pending approval of the National Water Service Commission (SPAN).
2nd was the big flood in Penang on 5th Nov 2017 and the subsequence offer of discount to PBA water user by Lim Guan Eng. The share price of PBA was badly effected by Lim Guan Eng announcement.
Let analyses what effect the discount to water user effect PBA financially using the revenue of 3 months ending 31st Dec 2016 as the reference.
The revenue expected without discount is RM 79.68 millions during the 3 months period.
Since the discount is only given for one billing cycle of 2 months, the revenue effected is =
2/3 x 79.68 = RM 53.12 millions.
1) The reduce of water conservation surcharge (WCS) for 2 months is about RM 20 millions/6 = RM 3.36 millions. (RM 20 millions being the estimated WCS revenue per year, see part 4 of the earlier “What is PBA worth? (Part 4) dated 25th May 2017” for details).
2) The revenue after minus WCS = 53.12 – 3.36 = RM 49.76 millions
The domestic sector revenue is about 40% = 0.4 x 49.76 = RM 19.9 millions.
Out of these, about 50% are the minimum usage fee (caj minimum) revenue and not qualify to get the discount as shown in PBA bill above.
The discount given to domestic sector= 19.9 millions x 0.5 x 50% discount= RM 4.98 millions
3) The trade sector revenue is about 60% = 0.6 x 49.76 = RM 29.85 millions.
Out of these, about 50% are the minimum usage fee (caj minimum) revenue and not qualify to get the discount as shown in PBA bill above.
The discount given to trade sector= 29.85 millions x 0.5 x 25% discount= RM 3.73 millions
The total reduction to PBA revenue due to flood discount= 3.36 + 4.98 + 3.73 = RM 12.07 millions for year 2018 since flood discount is not given in year 2017.
4) For the 9 months ending 30 Sept 2017, the Penang government water intake fees =
RM 15.33 millions.
This work out to be 4/3 x 15.33 = RM 20.44 millions Penang government water intake fees per year.
Since the Penang government has announced on 13th Dec 2017 that the water intake fees will be reduced by half in year 2018, the increase in PBA income = 0.5 x 20.44 = RM 10.22 millions for year 2018.
Base on calculation above, the effect of flood discount on PBA 2018 revenue
= 10.22 – 12.08 = minus RM 1.86 millions which is relatively small (0.57%) compared to PBA revenue of RM 326 millions expected for year 2017.
Since 2018 is Malaysia election year, whatever political game play by Lim Guan Eng, PBA Holdings Bhd chairman and Datuk Liang Teck Meng, SPAN chairman will end in year 2018. After all these political games are over, the present conservation surcharge (WCS) increase from RM0.48 to RM1.00 will be approved by the National Water Service Commission (SPAN) resulting is about RM 20 millions increase in PBA revenue yearly. This will be followed by gradual increase in the water tariff to encourage water conservation the next few years since Sungai Muda (supplying 80% of Penang water) is projected NOT able to supply any increase in water requirement beyond year 2020. Meanwhile, all the PBA share owner has to be very patient :( .
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