Zhitong Financial APP learned that Sino-Thai International issued a research report that reiterated China Water (00855) "buy" rating, revenue and shareholder net profit growth rate will rise from 6.3% in 2023 to 12.8% in 2024, with a target price of HK $9.7. After the bank's recent communication with the company's management, it is expected that after the epidemic is brought under control:(1) the demand for industrial and commercial water consumption has gradually increased; (2) more tap water projects have received an increase in water prices; (3) the construction of projects has returned to normal; (4) mergers and acquisitions of piped direct drinking water projects have been accelerated; and (5) the plan to dismantle and list tap water and direct drinking water has been accelerated.Since the end of the year is March 31, the above benefits will be more clearly reflected in the 2024 fiscal year.
The bank believes that the resumption of industrial and commercial activities after the epidemic is under control can promote water demand. CompanyTap water projectIn the first half of fiscal year 2023, two tap water projects were raised by the government. Due to the control of the epidemic, more tap water projects are expected to receive an increase in water prices. In the fiscal year 2021: 22, a total of 10 tap water projects in China have been raised by the government. In the first half of the 2023 fiscal year, tap water operating revenue increased by only 2.8% compared with the same period last year (+ 20.3% in fiscal year 2022), and the impact of the increase in water prices on revenue cannot be ignored.The bank predicts that tap water project construction will gradually return to normal, and revenue from water supply access and construction will rise to 3.5% and 21.5% in fiscal year 2024 compared with the same period last year.
In addition, inIn terms of pipeline direct drinking water projectDespite the impact of the epidemic, the company's business has maintained rapid growth. By the end of September 2022, the cumulative service population of the company's piped direct drinking water business (including projects under construction) reached 4 million, an increase of 166.7% over the same period last year, covering 21 provinces and municipalities directly under the Central Government and 165 counties and districts. The bank expects the company to accelerate mergers and acquisitions of piped direct drinking water projects in the future, with revenue from piped direct drinking water rising from HK $690 million in 2022 to HK $1.15 billion and HK $1.67 billion in 2023-24, with the share of revenue rising from 5.4 per cent to 8.3 per cent and 10.7 per cent over the same period. Different from the pricing of tap water, the price of piped direct drinking water is set according to market demand. The recovery of the domestic economy is beneficial for companies to raise the price of pipeline direct drinking water and strive for more reasonable profits.The bank expects the gross margin of piped direct drinking water to reach 50% or more in the future, higher than the current 40% level of tap water gross margin.
The bank mentioned that in December 2021, the company announced a proposal to spin off its tap water and piped direct drinking water business on the Hong Kong main board and that the spin-off business would remain a subsidiary of the company. The rest of the business includes sewage treatment and left to the company to operate. Affected by the epidemic, the progress of the spin-off listing plan is slow. The bank believes that the break-up is expected to accelerate when it returns to normal.If the spin-off is successful, the potential value of the split business can be released, which is conducive to enhancing the overall market value of the company.