Recently, Dongying released an updated report on the interim results of China Water (00855), maintaining its “buy” rating. The new target price is HK$6.70, corresponding to a 24-year price-earnings ratio of 6.0 times.
The Zhitong Finance app learned that recently, Dongying released an updated report on China Water (00855)'s interim results, maintaining a “buy” rating. The new target price is HK$6.70, corresponding to a 24-year price-earnings ratio of 6.0 times.
Dongying pointed out that China Water's FY2H24E revenue is expected to increase 0.9% year over year to HK$6.85 billion; the interim dividend per share is HK$0.13. CWA will maintain a dividend payment rate of 30%; urban water supply is expected to recover in 2H, and the increase in direct drinking water will be impressive.
Specifically, there has been a significant increase in drinking water directly from China's water supply pipelines. FY1H24 revenue increased 160.6% year over year to HK$1.03 billion. The division contributed 15.0% of total revenue, compared to 9.2% previously. In September 2023, the total service population of the company exceeded 7 million (March 2023:4.45 million). The business's profitability began to unleash. Segment profit jumped 175.1% year over year to HK$335.3 million. CWA will prioritize the use of capital resources to develop more direct pipeline drinking water projects. The bank expects the business to grow at a CAGR of 42.7% FY24E and FY26E, thanks to a rapidly growing customer base.
In terms of environmental protection business, the company's FY1H24 revenue increased 19.9% year over year to HK$637.4 million. The Huizhou Mei Foo petrochemical sewage treatment project focuses on industrial waste treatment and is currently in trial operation. The bank expects the project to significantly increase service revenue in the future.
Dongying said it expects improvements in fiscal year 2024. This is due to (1) improvements in water sales and prospects implied by recent Chinese economic data; (2) more projects are expected to receive approval for water price adjustments in the near future. Meanwhile, the pipelined drinking water business will continue to grow rapidly. Given the increasing revenue contribution, from a business perspective, it will become CWA's main profit driver.