Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Industrials
Although FY19 revenue was below expectations, it was offset by higher than expected margins in the water supply business and a lower tax charge, allowing EPS to beat our forecast. China Water Affairs Group’s (CWA’s) 2013–19 compound annual growth rate (CAGR) in EPS now stands at over 27% and the group remains positive about its prospects. The current rating is undemanding for a company with CWA’s growth prospects.
Written by
China Water Affairs Group |
Extending the earnings growth record |
FY19 results |
Utilities |
2 July 2019 |
Share price performance
Business description
Next events
Analyst
China Water Affairs Group is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Although FY19 revenue was below expectations, it was offset by higher than expected margins in the water supply business and a lower tax charge, allowing EPS to beat our forecast. China Water Affairs Group’s (CWA’s) 2013–19 compound annual growth rate (CAGR) in EPS now stands at over 27% and the group remains positive about its prospects. The current rating is undemanding for a company with CWA’s growth prospects.
Year end |
Revenue (HK$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/18 |
7,580 |
2,462 |
71.8 |
23.0 |
10.7 |
3.0 |
03/19 |
8,302 |
2,772 |
85.1 |
28.0 |
9.0 |
3.6 |
03/20e |
9,703 |
3,358 |
96.8 |
33.0 |
7.9 |
4.3 |
03/21e |
11,323 |
3,907 |
112.6 |
38.0 |
6.8 |
4.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY19 results: Another year of growth
CWA’s FY19 revenue rose by 9.5%, to HK$8.3bn, but undershot our expectations (HK$8.7bn), the result of slower growth in the water supply business due to currency effects and a capex-related decline (-6.6%) in construction services. However, strong growth in water supply revenues (+12.6%, +16.7% before currency effects), connections service revenues (+9.7%, +13.7%) and an improvement in the margin, (from 37% to 41%), resulted in overall water supply profits increasing by 9.0%. The Environmental Protection business continues to grow strongly, posting an 87.1% rise in revenue and a 63.8% increase in segment profits, helped by facilities upgrades and construction work. EPS (basic) of 85.1c was up 17.2% versus 2018 and exceeded our forecast for FY19 of 83.2c, thanks to a lower than anticipated tax rate (23% versus our assumed 28%). Excluding currency fluctuations, y-o-y net profit growth was 25.4%. CWA has achieved a CAGR in EPS for the period 2013–19 of 27.4%. The DPS of 28c (+21.7% y-o-y), undershot our forecast of 30c (2013–19 CAGR of 33%). Net debt increased to HK$10.3bn with a total liabilities/total assets ratio of 64% (a five-year avg. of 61%).
Outlook: KIEG will contribute for the first time in FY20
CWA remains confident of its prospects and believes recent statements from the Chinese government are supportive of the role of private finance in public infrastructure. The April 2019 acquisition of a 29.5% stake in Kangda International Environmental Group (KIEG) for HK$1.2bn occurred after the year end. The short-term financial impact of the acquisition (from FY20) is likely to be small but in the long term should help to strengthen CWA’s Environmental Protection business.
Valuation: Upside to peer group
We have revised our forecasts and now expect EPS of 96.8c for FY20 (versus 101c previously). Our projections for the period 2019–22 assume a CAGR in EPS of c 16%. At a share price of HK$8, CWA is trading on an FY20e P/E of 8.3x, a P/B ratio of 1.4x and a PEG ratio of 0.6x compared to peer group averages of 15.6x, 1.6x, and 1.2x, respectively. A PEG ratio of 0.9x would produce an indicative share price of HK$11 for CWA.
Exhibit 1: Financial summary
HK$m |
2017 |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 March |
HKFRS |
HKFRS |
HKFRS |
HKFRS |
HKFRS |
||
PROFIT & LOSS |
|||||||
Water supply revenue |
4,874 |
6,204 |
6,376 |
7,225 |
8,105 |
||
Environmental Protection |
531 |
814 |
1522 |
2055 |
2774 |
||
Other segments |
303 |
562 |
404 |
424 |
445 |
||
Revenue TOTAL |
|
|
5,708 |
7,580 |
8,302 |
9,703 |
11,323 |
EBITDA |
|
|
2,646 |
3,097 |
3,507 |
4,174 |
4,860 |
Operating Profit |
|
|
2,271 |
2,691 |
3,022 |
3,600 |
4,211 |
Amortisation |
315 |
334 |
404 |
444 |
489 |
||
Depreciation |
60 |
71 |
81 |
130 |
160 |
||
Net Interest expense |
(251) |
(289) |
(319) |
(422) |
(506) |
||
Profit Before Tax |
|
|
1,963 |
2,462 |
2,772 |
3,358 |
3,907 |
Tax |
(583) |
(701) |
(642) |
(940) |
(1,094) |
||
Profit After Tax |
1,379 |
1,762 |
2,130 |
2,418 |
2,813 |
||
Net profits attributable to shareholders |
853 |
1,141 |
1,369 |
1,564 |
1,820 |
||
Average Number of Shares Outstanding (m) |
1,505 |
1,571 |
1,609 |
1,609 |
1,609 |
||
EPS - fully diluted (c) |
|
|
55.4 |
71.8 |
85.1 |
96.8 |
112.6 |
Dividend per share (c) |
20.0 |
23.0 |
28.0 |
33.0 |
38.0 |
||
EBITDA Margin (%) |
46.4 |
40.9 |
42.2 |
43.0 |
42.9 |
||
Operating Margin (%) |
39.8 |
35.5 |
36.4 |
37.1 |
37.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
15,689 |
19,581 |
24,493 |
28,702 |
31,636 |
Intangible Assets |
10,316 |
13,499 |
16,514 |
19,569 |
22,581 |
||
Plant, property and equipment |
1,127 |
1,695 |
2,020 |
1,990 |
1,930 |
||
Investment properties |
1,173 |
909 |
912 |
915 |
918 |
||
Investment in associates |
635 |
661 |
676 |
1,676 |
1,454 |
||
Other |
2,438 |
2,817 |
4,371 |
4,551 |
4,753 |
||
Current Assets |
|
|
9,942 |
9,008 |
11,332 |
12,324 |
10,511 |
Properties Under Development |
|
|
690 |
1,370 |
1,274 |
1,274 |
1,274 |
Properties Held for Sale |
|
|
289 |
597 |
816 |
816 |
816 |
Inventory |
|
|
285 |
348 |
531 |
621 |
724 |
Trade and Bills Receivables |
|
|
872 |
1,055 |
1,243 |
1,453 |
1,695 |
Due from Non-controlling Equity Holders of Subsidiaries |
251 |
260 |
288 |
323 |
376 |
||
Due from Associates |
|
|
409 |
563 |
227 |
227 |
227 |
Prepayments, Deposits and Other Receivables |
1,743 |
1,293 |
1,550 |
1,811 |
2,114 |
||
Pledged Deposits |
|
|
783 |
570 |
645 |
645 |
645 |
Deposits and cash |
4,314 |
2,511 |
3,973 |
4,370 |
1,855 |
||
Other |
307 |
440 |
785 |
784 |
784 |
||
Current Liabilities |
|
|
7,393 |
8,649 |
10,019 |
12,124 |
10,065 |
Trade and Bills Payables |
|
|
1,097 |
1,626 |
2,410 |
1,400 |
1,500 |
Accrued Liabilities, Deposits and Other Payables |
2,102 |
2,306 |
1,979 |
2,878 |
3,365 |
||
Short-term Borrowings |
3,206 |
3,450 |
3,437 |
5,032 |
2,040 |
||
Other |
988 |
1,267 |
2,192 |
2,813 |
3,160 |
||
Long Term Liabilities |
|
|
9,275 |
8,786 |
12,903 |
14,317 |
15,534 |
Long-term Borrowings |
8,123 |
7,432 |
11,494 |
12,494 |
13,494 |
||
Other long term liabilities |
1,152 |
1,354 |
1,409 |
1,823 |
2,040 |
||
Shareholders' Equity |
|
|
8,963 |
11,154 |
12,902 |
14,585 |
16,548 |
- |
- |
- |
- |
- |
|||
CASH FLOW * |
|||||||
Net Cash Flows from Operating Activities |
1,452 |
1,632 |
1,429 |
3,179 |
3,763 |
||
Purchase of property, plant and equipment |
(92) |
(100) |
(100) |
(100) |
(100) |
||
Increase in concession rights for water supply and sewage processing |
(1,808) |
(2,500) |
(2,500) |
(3,500) |
(3,500) |
||
Acquisitions/disposals |
(283) |
0 |
0 |
(1,200) |
0 |
||
Increase in prepayments and other receivables |
(1,226) |
0 |
0 |
0 |
0 |
||
Others |
(134) |
(171) |
(708) |
159 |
164 |
||
Net Cash Flows from Investing Activities |
(3,543) |
(2,771) |
(3,308) |
(4,641) |
(3,436) |
||
Dividends |
(135) |
(369) |
(450) |
(531) |
(611) |
||
Shares issue and/or options exercised |
(38) |
301 |
0 |
0 |
0 |
||
Other |
245 |
(362) |
(183) |
(205) |
(238) |
||
Net Cash Flow |
(2,020) |
(1,569) |
(2,513) |
(2,198) |
(523) |
||
Opening net debt (CWA definition) |
|
4,213 |
6,232 |
7,801 |
10,313 |
12,512 |
|
Closing net debt/(cash) |
|
|
6,232 |
7,801 |
10,313 |
12,512 |
13,034 |
Net debt to equity ratio (CWA definition) |
|
70% |
70% |
80% |
86% |
79% |
|
Source: Company accounts, Edison Investment Research. Note: *FY19 cash flow figures remain estimates as CWA has yet to publish its cash flow statement for the year.
|
|
Research: TMT
Edel’s H119 results to March showed a modest improvement in revenues, which were up 2% on the prior period, and a broadly stable EBITDA and margin. Increased depreciation impacts further down the income statement. Management has been passed down a generation to Jonas Haentjes, post Edel’s transition to a partnership limited by shares (the founding family retains its 64% stake). The shares trade at a substantial discount to global entertainment content and publishing stocks, partly due to the limited market liquidity.