China Water Affairs Group

HK: 855

HKD13257.3m market cap

HK$8.24 last close

China Water Affairs (CWA) is a pioneer in the privatisation of water supply assets in China. It seeks to create growth via volume/price increases and acquisitions. CWA is a constituent of the FTSE Environmental Opportunities Asia Pacific Index.

Investment summary

CWA achieved H1 growth in revenue, net profit, EPS and DPS of 17.9%, 20.3%, 14.9% and 50% respectively. The core business of water supply and environmental protection saw operating profits increase by 19.3%. Increases in water volume sold, tariff hikes, new connections and contribution from new projects all contributed to increased profits. Following the results we made adjustments to our FY19 estimates and we now forecast revenue of HK$8,593m and EPS of HK$0.832. We also increased our DPS forecast to HK$0.30 (HK$0.262) following the large interim increase. We believe the macro operating environment remains favourable for CWA and we see the announced 50% increase in the H1 DPS as an indication of management’s confidence in the future. CWA trades on a modest PEG ratio of c 0.7x.

Y/E Mar
Revenue (HK$m)
EBITDA (HK$m)
PBT (HK$m)
EPS (c)
P/E (x)
P/CF (x)
2017A 5708.0 2646.0 1963.0 55.4 14.9 N/A
2018A 7580.0 3097.0 2462.0 71.8 11.5 N/A
2019E 8593.0 3644.0 2873.0 83.2 9.9 N/A
2020E 10002.0 4246.0 3415.0 98.4 8.4 N/A
Last updated on 22/03/2019
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 22/03/2019
Sector
Industrials
Share price graph
Balance sheet
Forecast net debt (HK$m) 7978
Forecast gearing ratio (%) N/A
Price performance
%
1m
3m
12m
Actual (4.4) (1.4) 0.6
Relative* (5.4) (12.8) 7.4
52-week high/low HK$10.5/HK$7.0
*% relative to local index
Key management
Duan Chuan Liang Chairman
Liu Yu Jie Executive director
Ding Bin Executive director
Li Zhong Executive director