The Zhitong Finance App learned that Dongying Securities released a research report stating that maintaining the “buy” rating of China Water (00855) was given a target price of HK$8.75 based on 6.7 times the price-earnings ratio of FY2024.
The bank pointed out that the company's shareholders' attributable profit in FY2023 fell 1.9% year on year to HK$1.86 billion. This was mainly due to unfavorable foreign exchange trends, higher financing costs, and lower share of related income. Excluding exchange rate effects, shareholders' attributable profit in RMB increased 4.1% year-on-year to RMB 1.6 billion.
The bank said that the company's pipeline direct drinking water business continues to develop rapidly. In fiscal year 2023, the company's total number of customers increased 48% year over year to 4.45 million, and revenue increased 88.9% year over year to HK$1.31 billion. The company prioritizes the development of piped direct drinking water business. During fiscal year 2023, the company announced a series of strategic cooperation projects in the field of piped drinking water in addition to urban water supply projects, with a potential service population of 5.8 million. The bank expects the business's revenue to grow at a compound annual rate of 42.5% between FY2024 and FY2025, thanks to sufficient projects.
The bank said the prospects for the company's urban water supply business are stable. The business showed its ability to withstand headwinds in fiscal year 2023. Total water sales increased 4.1% year on year to 1.53 billion tons, and the number of registered water meters increased 4.9% year on year to 7.84 million.
The bank said that the company's environmental protection business is likely to maintain its growth momentum. Revenue from the business increased 17.5% year-on-year to HK$1.41 billion in FY2023. The integration of water supply and drainage is expected to continue to drive more construction work to ensure the growth of this business over the next few years. According to reports, ExxonMobil's Huizhou sewage treatment infrastructure expansion project is about to be completed and put into use, which will bring about high-quality long-term growth.
Also, regarding the latest news on a potential spin-off, on June 28, 2023, the company submitted a spin-off listing application for Yinlong Water Supply (mainly involved in urban water supply and direct drinking water from pipelines) to the Hong Kong Stock Exchange. The bank believes that the successful spin-off of the business will unlock the company's overall value.