The Zhitong Finance App learned that Dongying Securities released a research report saying that China Water (00855) was given a “buy” rating for the first time, with a target price of 9.5 Hong Kong dollars. The direct drinking water business could be a catalyst for revaluation. The company plans to split and list the water supply and direct drinking water business separately. Furthermore, the strong business base and organic double-digit growth forecast the EPS CAGR of the company FY2023E-25E to be 11.2%.
The bank mentioned that the prospects for the direct drinking water business are attractive. The company has accumulated expertise and customer resources to seize rising opportunities in the direct-drinking water market. The direct-drinking water market will benefit from everyone's pursuit of clean water and the possible tightening of regulations on disposable items such as plastic bottles. Revenue from this business is expected to grow by about 70%/100% in FY23E/24E, which will be the main driving force for growth in the next few years.
Furthermore, the profit prospects for the water supply business are good. The bank expects the latest water price reform to improve the return of the water supply business, mainly driven by more efficient operators driven by a higher asset base and incentives used to calculate returns. China's water sector mainly focuses on low-tier cities close to the eastern coastal regions of China. It can benefit from the growing demand for water, urbanization, and the expansion of the Yangtze River Economic Belt.