China Water Affairs Group

HK: 855

HKD12629.9m market cap

HK$7.85 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’s record of generating growth for its shareholders is impressive, with a CAGR in EPS and DPS of 30% and 36% respectively (2013–18). We expect CWA to achieve further growth in the period 2018–21 (CAGR for EPS of c 17% and DPS c 20%) through a mixture of volume increases, tariff increases and acquisitions. The recent acquisition of 29.5% Kangda International for HK$1.2bn will help CWA strengthen its position in the expanding waste water sector. The business was acquired at a c 15% discount to book value and CWA believes it can, over time, enhance earnings and reduce KIEG’s high level of indebtedness. Applying peer group average multiples would indicate a valuation of c HK$11.4 per share for CWA. At HK$8.2 per share, CWA trades on a PEG ratio of only 0.6x, versus 1.6x for its peers.

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 14.2 N/A
2018A 7580.0 3097.0 2462.0 71.8 10.9 N/A
2019E 8693.0 3644.0 2873.0 83.2 9.4 N/A
2020E 10107.0 4246.0 3504.0 101.0 7.8 N/A
Last updated on 22/05/2019
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 22/05/2019
Sector
Industrials
Share price graph
Balance sheet
Forecast net debt (HK$m) 8363
Forecast gearing ratio (%) N/A
Price performance
%
1m
3m
12m
Actual (4.7) (8.9) 1.4
Relative* 3.0 (5.3) 14.3
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