The Zhitong Finance App learned that recently, China Water (00855) Hunan Xinhuang County Project received a two-stage increase in tap water prices from the local government. 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). On January 8, Sino-Thai International released a research report stating that it maintains China Water's (00855) “buy” rating and reaffirms the target price of HK$7.00, which corresponds to the 6.0 times FY24 target price-earnings ratio and 53.8% room for growth.

According to reports, starting in 2024, the first phase of China's water supply project will increase water prices for first-tier to third-tier residential users (billed at minimum to multiple levels) from 2.13/m3, 3.20/m3, and 4.26/m3, respectively, by 23.0%, 22.5%, and 83.3% 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.

China Thai International pointed out that the increase in water prices in the mainland slowed during the epidemic. This price adjustment shows the effective implementation of the “Urban Water Supply Price Management Measures” 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.

In addition to the Xinhuang County project in Hunan, FY22 and FY23 China Water have been approved to raise tap water prices for four and eight projects, respectively. The total water supply capacity is 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. Zhongtai International expects 2HFY24 and FY25 companies to have more projects approved to raise tap water prices.