The Zhitong Finance App learned that Sino-Thai International released a research report stating that it maintains China Water's (00855) “buy” rating, maintains profit forecasts, and reaffirms the target price of HK$7, corresponding to 6.0 times the FY24 target price-earnings ratio and 53.8% room for growth. FY22 and FY23 respectively approved four and eight projects to raise tap water prices. The total water supply capacity was about 580,000 tons/day and 50 tons/day, accounting for 9.1% and 7.8% of the total tap water production capacity at the end of the year. Within FY24, up to now, two projects have adjusted prices. The total water supply capacity is 68,000 tons/day, accounting for 1.0% of the total tap water production capacity. The bank expects 2HFY24 and FY25 companies to have more projects approved to raise tap water prices.

It is worth noting that recently, the company's Xinhuang County project in Hunan received a two-stage increase in tap water prices from the local government. In the first phase, starting in 2024, water prices for first-tier to third-tier residential users (billed at low to multiple levels) increased by 23.0%, 22.5%, and 83.3% from 2.13/m3, 3.20/m3, and 4.26/m3, respectively, to 2.62/m3, 3.92/m3, and 7.81/m3. Non-residential and special fixed water prices increased by 28.4% and 27.7% to 4.11/m3 and 10.88/m3, respectively. In the second phase, starting in 2025, water prices for residents and non-residents/special users will increase by about 18% and 21% respectively. The project's water supply capacity reached 45,000 tons/day, accounting for 0.7% of the company's total tap water production capacity of 6.5 million tons/day (as of September 30, 2023).

Furthermore, the increase in water prices in some regions of Shanghai boosted expectations of a general increase in water prices across the country, and the increase in water prices in the mainland slowed down during the epidemic. The bank believes that this price adjustment shows the effective implementation of the “Urban Water Supply Price Management Measures” (see Figure 1) announced by the National Development and Reform Commission in August 2021, replacing the old rules that have been in place for about 20 years. Under the new rules, the allowable income of water supply operators was changed from a return on net assets to a return on invested capital, and the amount of revenue is expected to be higher. Water pricing will also take more into account operating costs and efficiency. As the economy continues to recover, the bank believes that the “Urban Water Supply Price Management Measures” will be strengthened and effective implementation will be strengthened, and some local governments will raise tap water prices. For example, since 2024, tap water prices have been raised in parts of Shanghai. Water prices for first-tier to third-tier residential users in Pudong have increased by 17.2%, 21.2%, and 62.6% to 2.25/m3, 4.00/m3, and 6.99/m3, respectively.

The bank said that FY22 and FY23 China Water had four and eight projects approved respectively to raise tap water prices. The total water supply capacity was about 580,000 tons/day and 50 tons/day, accounting for 9.1% and 7.8% of the total tap water production capacity at the end of the year. Within FY24, up to now, two projects have adjusted prices. The total water supply capacity is 68,000 tons/day, accounting for 1.0% of the total tap water production capacity. The bank expects 2HFY24 and FY25 companies to have more projects approved to raise tap water prices.