The Zhitong Finance app learned that the revenue of China Water (00855) from April to September 2023 rose 0.9% year on year to HK$6.85 billion. Based on the interim results performance, Zhongtai International lowered the company's FY24-26 shareholders' net profit forecasts by 7.7%, 7.2%, and 5.7% respectively, and reduced the target price from HK$7.60 to HK$7.00, corresponding to 6.0 times the FY24 target price-earnings ratio and 43.5% increase, and reaffirmed the “buy” rating.

From April to September 2023, China Water's pipeline-direct drinking water business performed well. Revenue rose 160.6% year on year to 1.03 billion yuan, accounting for a year-on-year increase of 9.2 percentage points to 15.0% of the company's total revenue. The number of projects (including under construction) increased by about 70% year on year to more than 6,800. Zhongtai International expects direct drinking water revenue from the FY24-26 pipeline to increase by 72.5%, 40.7%, and 38.5% year-on-year respectively to 2.26 billion, 3.18 billion and 4.4 billion yuan, accounting for 15.0%, 19.9% and 25.9% of the company's total revenue.

A number of mainland economic statistics have improved in recent months. For example, total retail sales of social consumer goods in the first three quarters of 2023 increased by 6.8% year on year, up from 0.7% in the same period last year. This indicates an increase in the demand for tap water in society, especially in the industrial and commercial industries. Economic recovery has also given the government a lot of room to raise water prices. Sino-Thai International reiterated its view that the benefits of economic recovery on tap water demand will only gradually become apparent from 2H FY24. It is estimated that FY24-26 China's tap water management service revenue will increase by 3.3%, 3.4%, and 5.4% year-on-year, respectively, to 3.46 billion, 3.58 billion yuan, and 3.78 billion yuan.