PBA announced its 2023 earnings yesterday. Share price was down this morning. What happened?

Negatives:

1. Incurred accounting loss of RM12m in Q4 despite PBT of RM14m.

2. Cost of sales up quarter-on-quarter or qoq. 3Q: RM63m, 4Q:RM75m. The company explained that this is due to higher maintenance expenses. Still I think it is higher than expected and not enough details given in the announcement.

3.Revenue and PBT were both lower than expected.

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Positive:

1. Cash increased year-on-year (yoy) and qoq:

Q4: RM232m, Q3: RM213m, 2022 = RM189m.

2. Free cash flow is higher year-on-year (yoy):

2023 = RM78m, 2022 = RM74m.

3. Dividend announced of 1.75 sen is higher than last year's 1.5 sen.

4. The tax effect is a non-cash item. The effect of deferred tax assets not being recognized (RM21 million) is the reason it swung Q4 PBT to a net loss.

What I think?

1. Q4 result is disappointing, on the surface.

2. But I still believe Q1 2024 is likely to be better compared to Q4 2023 since higher tariffs take effect from February 1st, 2024.

3. 2024 earnings should improve significantly than 2023 due to higher sales volume and better tariffs.

4. Long-term outlook remains good. The tariff review now takes place every 3 years, and water usage always increases year after year.

5. The new intrinsic value is RM2.60. This translates to a PE ratio of 10x. Given the estimated 2024 EPS of 26 sen, this calculation results in a value of RM2.60.