The Zhitong Finance App learned that China Thai International released a research report stating that it reaffirms the “buy” rating of China Water (00855) with a target price of HK$8.8, and expects shareholders' net profit for the 2024-25 fiscal year to be 0.9% and 8.3% to 2.26 billion yuan and 2.49 billion yuan, up 21.9% and 10% from the previous year. The construction of the company's tap water project continued, and related construction revenue increased 3.2% year on year to 4.17 billion yuan. At the same time, the direct drinking water business, which has been strengthened in recent years, has expanded rapidly. In fiscal year 2023, pipeline direct drinking water revenue increased sharply by 99% year on year to 1.31 billion yuan. In the long term, the company's target revenue from drinking water directly from pipelines is on par with revenue from tap water. Furthermore, the bank believes that the company's spin-off listing plan will continue to advance, and that the potential value of the spin-off business can be unleashed, which is beneficial to increasing the company's overall market value.
Continued growth in tap water operations and project construction
The company's revenue rose 9.6% year on year to 14.20 billion yuan, similar to the forecast of 13.8 billion yuan estimated by China and Thailand. Water revenue fell slightly year on year due to poor real estate sales data in the mainland, but tap water operations showed an increase. Water sales volume and number of water supply customers increased 4.1% and 4.9% year-on-year respectively to 1.53 billion tons and 7.84 million tons. The construction of the water supply project continued, and related construction revenue increased 3.2% year on year to 4.17 billion yuan.
Pipeline direct drinking water business expands rapidly
The direct drinking water business, which the company has been focusing on in recent years, has expanded rapidly. Pipeline direct drinking water revenue (connection+operation+construction) increased sharply by 99% year on year to 1.31 billion yuan (accounting for 9.2% of the company's total revenue) in fiscal year 2023. Of these, connection, operation, and construction revenue increased 57.6%, 95.5%, and 108.5% year-on-year to 170 million, 110 million, and 1.03 billion yuan, respectively. The number of people served increased from over 3 million in FY2022 to over 4.45 million in FY2023, covering 22 provinces and municipalities directly under the Central Government, including more than 200 counties and cities. The bank expects pipeline direct drinking water revenue to rise 49.9% and 39.8% year-on-year respectively to $1.96 billion and $2.74 billion in the 2024-25 fiscal year, with the company's share of total revenue rising to 12.2% and 15.7%. In the long term, the company's target revenue from drinking water directly from pipelines is on par with revenue from tap water.
The spin-off listing plan continues to advance
On the other hand, Zhongtai International believes that the company's spin-off listing plan will continue to advance. The company announced in December 2021 that its tap water and piped drinking water business will be spun off and listed on the Hong Kong Main Board. The spun off business will remain a subsidiary of the company. The remaining business includes sewage treatment and leaving it to the company's operations. The spin-off listing plan was affected by the pandemic last year and progressed slowly. If the spin-off is successful in the future, the potential value of the spun off business can be released, which is beneficial to increasing the company's overall market value.
It is worth mentioning that the Zhitong Finance App learned that yesterday evening (June 28), China Water announced a spin-off plan. The company proposed splitting the shares of Yinlong, a wholly-owned subsidiary of the company, and listed independently on the main board of the Stock Exchange through global sale and distribution. The independent listing of Yinlong Co., Ltd. constituted a company spin-off of Yinlong in accordance with the application guidelines in section 15. The company has submitted a spin-off proposal to the Stock Exchange in accordance with Application Guidelines No. 15, and the Stock Exchange has confirmed that the company can carry out the proposed spin-off. According to reports, the spin-off group is mainly engaged in urban water supply and piped drinking water business in China.