The Zhitong Finance App learned that CITIC Securities released a research report saying that it gave Beikong Water Group (00371) a “buy” rating, traditional business is steadily expanding, and the drag on the previous water environment management business is expected to bottom out soon, but construction revenue has declined markedly, and the target price is HK2. The company's 2022 performance fell short of expectations, but the scale of operating projects continued to expand, and operating revenue and performance grew steadily. Investment losses are one-time non-cash expenses. At the same time, the continuous contraction of the water environment treatment business in the early stages is about to bottom out, while the operating business is growing steadily, and an inflection point in performance is expected to occur soon.
According to the report, by business, the company's construction service revenue in 2022 fell 52% year on year to HK$6.085 billion, due to an incremental shift in the industry from an incremental shift to the stock market. The reduction in new projects led to a 51% year-on-year decline in construction revenue for BOT water projects to HK$4,626 million; and the company's active transformation to asset-light, comprehensive water environment management revenue fell 53% year-on-year to HK$1,459 million. Sewage and water supply operating services revenue increased 16% year-on-year to HK$12.964 billion in 2022, mainly due to a net increase in operating capacity of 2.84 million tons/day during the year. In addition, gross margin increased 1.9 pcts to 39.4% year-on-year during the period, indicating an increase in the share of operating income with higher gross margin, while gross margin remained stable; the management/finance expense ratio increased 2.5/3 pcts. On the one hand, operating income declined, and on the other hand, management and financial expenses increased as operating projects increased and interest rates on US bonds rose.
The bank said that the company's asset-light transformation is beginning to bear fruit, and the cash flow situation may improve. According to its 2022 annual report, the company firmly promotes asset-light transformation and actively reduces investment in comprehensive water environment treatment projects with large investments and slow cash return. In 2022, the company completely stopped investing in new asset-heavy projects in this field, and only adopted asset-light models such as EPCO and technical services. With fewer engineering projects under construction, the company's capital expenditure fell 32% year over year to HK$7.325 billion in 2022. The bank expects the company's net cash flow from operating activities to be corrected within the year and will gradually improve with the company's asset-light transformation strategy.