CFA Institute Research Challenge Season 6 (2023-24): Presentation
Date
2024-02-14
Journal Title
Journal ISSN
Volume Title
Publisher
CamEd Business School
Abstract
Description
Phnom Penh Water Supply Authority (PWSA) is a state-owned enterprise processing clean water treatment and distributing clean water to users within Phnom Penh and Takhmao cities. PWSA is running the operation under regulated tariff and bear its own costs.
We initiate PWSA with a SELL recommendation based on a one-year target price of KHR 6,207, representing a 15% downside risk at a closing price of KHR 7,280 on December 31, 2023. We utilize the discounted cash flow (DCF) model to evaluate PWSA based on FCFE. With PWSA's stock trading at a 12% premium above its regional peer's average P/E multiple, FY22 ROE of 8.5% and ROIC of 4.4% below the industry average of 13% and 10%, and cost of equity of 15.2% and WACC of 11.8%, respectively, we believe PWSA's value is justified. Despite its vital role in providing essential services, PWSA is grappling with significant challenges that have led to poor financial performance and the company’s inability to achieve returns above the investor's minimum required return. Investors may worry about the company's financial stability.