China Water Affairs Group

HK: 855

HKD10731m market cap

HK$6.69 last close

China Water Affairs (CWA) is a pioneer in the privatisation of water supply assets in China. The company seeks to create growth via volume/price increases.

Investment summary

Despite a challenging environment, CWA performed strongly in FY20, achieving growth in all key financial metrics. Revenue rose 4.7%, helped by a strong performance from the water business (c 90% of profits) and operating profit rose by 5.3%. Lower finance costs, a stronger than forecast associate line and a lower than expected tax rate delivered a 17.7% rise in net profits (2.8% ahead of forecast). A lower than forecast attribution to minorities and a small fall in the share count (buy-back) saw EPS rise 20%. The DPS of HK$0.30 was below our forecast (HK$0.33), but still up 7.1% y-o-y. Based on our updated forecasts CWA’s share price rating appears modest despite requirements for significant environmental expenditure in the Chinese water sector presenting it with an opportunity to grow.

Y/E Mar
Revenue (HK$m)
EBITDA (HK$m)
PBT (HK$m)
EPS (c)
P/E (x)
P/CF (x)
2019A 8302.0 3536.0 2772.0 85.1 7.9 N/A
2020A 8694.0 3781.0 3165.0 102.1 6.6 N/A
2021E 9731.0 4278.0 3374.0 108.0 6.2 N/A
2022E 10787.0 4725.0 3810.0 122.0 5.5 N/A
Industry outlook

Water supply in China remains fragmented. The central government encourages local governments to deleverage their own balance sheets with private–public partnerships. This trend remains positive for CWA.

Last updated on 11/08/2020
Sector
Industrials
Share price graph
Balance sheet
Forecast net debt (HK$m) 0
Forecast gearing ratio (%) N/A
Price performance
%
1m
3m
12m
Actual 14.8 15.7 7.0
Relative* 18.6 14.4 11.5
52-week high/low HK$6.8/HK$5.1
*% relative to local index
Key management
Duan Chuan Liang Chairman
Liu Yu Jie Executive director
Ding Bin Executive director
Li Zhong Executive director

Content on China Water Affairs Group