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EXECUTIVE Q&A: REALISTIC MINDSET KEY FOR PLANNING FUTURE GROWTH
19 February 2010
Eastern Water Resources Development & Management Plc (East Water or EASTW)develops and manages major water distribution pipeline systems in Thailand's Eastern Seaboard. The company supplies raw water to industrial estates, factories and waterworks via four main pipeline systems in Chon Buri, Rayong and Chachoengsao. It also procures raw water from government agencies for commercial distribution to end users. CEO Praphant Asava-aree discusses the company's strategy and outlook.
BUSINESS:
Please explain East Water's business model.
There are a few important chapters in East Water's history. East Water was initially set up by a government agency in 1992 as it foresaw potential problems in allocating water to industries.
The company's role was to be the sole manager of water in the Eastern Seaboard (Chachoengsao, Chon Buri and Rayong) and that it would eventually become a publicly listed company, this occurred in 2000. But the mindset required for a government company differs greatly from that needed by a publicly listed company.
Today we focus on creating more shareholder value. Most people understand that we are a water company,but essentially our core business is logistics as we transfer water from its source to customers. We do not own the actual water resources, instead we purchase the raw water mainly from the Royal Irrigation Department (RID). East Water invests in the water grid to provide these services.
What types of water does East Water provide?
Approximately 70% of East Water's revenue comes from supplying raw water,the remainder is from tap water supplied by our subsidiary Universal Utilities. The tap water business also provides water treatment services. We have had some ventures in the past regarding waste water management/treatment but only for operations and maintenance. We are exploring opportunities to manage waste water and it may be an additional business unit in the future.
What is the current capacity and current utilisation rates?
The water business is not like a power plant where you run at 100% capacity continuously. Our maximum capacity is 400 million cubic metres and in Rayong we probably run at 80% to 85% capacity.In areas where we keep reserves, it would be far lower. Overall we have a capacity utilisation of 50% to 55%
The key factor for us is to manage the inventory of water being supplied from the reservoirs to our customers. We monitor three reservoirs, we monitor the weather, the water inflow, the water outflow, we need to monitor from where we would transfer the water to customers,not only monitoring the depth of the reservoir but also the lowest cost of transmission. We have to be wary of all these elements because, for example, if we were to oversupply a certain reservoir and there is more rainfall than expected we may potentially cause a flood. Thus,as said earlier, one cannot measure our capacity utilisation like a power plant.
Who are East Water's major customers?
East Water is wholesaler of water to customers providing domestic consumption. The Provincial Waterworks Authority (PWA), the Industrial Estate Authority of Thailand (IEAT) and Hemaraj Industrial Estate are some of our major customers.
What are East Water's expansion plans?
Our business generally grows as the country expands, we are looking to expand into southern Thailand in locations such as Phangnga and Krabi where there are water supply problems.As the region is growing because of development and tourism, we view the water supply problem will continue to grow in the future.
We are currently analysing the investment costs and talking with the authorities to see if the return on investment is justifiable.
INDUSTRY:
How has the Map Ta Phut delay affected your current/future business?
On the short term it will affect our revenue by a maximum of 3% to 5% this year. But if none of these projects continue, then it will have a far larger negative impact on Thailand and East Water over the medium and long term.However we are optimistic that things will improve.
FINANCIAL:
East Water's financial performance in past few year was vastly different from 2009. Why was this?
I joined East Water in 2007. We had to restructure the business as some subsidiaries of East Water had performed poorly over the past few years. Thus, in 2008, we had a lot of provisions and write-offs on investments. We also had to change the cost structure to one flat rate for the entire region as in some areas prices had not changed for 10 years despite water demand increasing six times.
But as you can see in 2009, after implementing these changes, East Water had its best year ever in terms of financial performance and we expect earnings to continue to grow at 10% a year for the next five years.
MISCELLANEOUS:
What do you feel are the biggest risks facing your business today?
Because we operate within communities in Thailand, we have worked hard at establishing and maintaining a strong relationship with them as well as the surrounding provinces. An example of this is that our CSR team recently worked on providing a waste water treatment system to the Sothorn Wararam Woravihan temple in Chachoengsao.
We strive to help the communities where we operate and over the past one-and-a-half years our CSR team has worked on and implemented numerous projects to benefit these communities.So we have seen a remarkable change in the way East Water is looked upon and we look forward to continuing these efforts.
Where do you see East Water in five years from now?
In five years from now we will look to expand further in Thailand to the southern regions and overseas. We see a great investment potential in Vietnam and in India's second and third-tier cities.
The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media & technology company, and the largest investor relations network in the region with more than 400 listed clients.The interview is conducted by Pon Van Compernolle, managing partner of GVC Capital, an investment advisory firm focused on small-mid caps in Thailand. For more information, e-mail pon@gvc-capital.com or howard@shareinvestor.com or visit www.ThaiListedCompany.com
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