The Zhitong Finance App learned that Minsheng Securities released a research report saying that since the water supply industry is closely related to life and industrial production, is clearly rigid, and most water supply projects have already been put into operation, the overall operation of water companies is stable, with cash flow advantages and strong dividend attributes. At the same time, compared with developed countries, the price of water supply in China is low. The increase in water prices may be the general trend in the future. A sharp rise in volume and price is expected to ensure that water companies maintain high dividends. Focus on Hongcheng Environment (600461.SH), Chongqing Water (601158.SH), Guangdong Investment (00270), China Water (00855), and Pioneering Environmental Protection (600008.SH), etc.

Minsheng Securities's views are as follows:

Water services are an important infrastructure project for people's livelihood:

The upstream water industry includes equipment manufacturing and engineering construction; the midstream mainly operates water facilities; the downstream includes related enterprise users and residential users. The operation of water facilities consists of raw water supply, tap water production, drainage, sewage treatment, and water resource recycling. Water operation projects mainly adopt the franchise model. Generally, the franchise cycle is 25-30 years, and there are geographical characteristics and franchise barriers.

Water supply: ensure the safety of water resources, economical use and intensive use:

There is a relative shortage of water resources in China. Among them, agricultural water consumption accounts for the highest proportion. Overall industrial water consumption is declining year by year. Mainly due to stricter environmental regulations, attention is being paid to recycling and effective use of water resources. In September 2023, the National Development and Reform Commission and other departments issued “Opinions on Further Strengthening the Conservation and Intensive Use of Water Resources”, which proposed strict control of total water consumption and intensity. Meanwhile, in recent years, China's per capita share of water resources has remained low. After two consecutive years of major droughts, more and more attention has been paid to water safety, which is expected to bring new development opportunities to the water services and water treatment industry.

Water treatment: There is a long way to go in upgrading standards, and reclaimed water is promising:

Overall, China's sewage treatment and discharge standards tend to be strict and perfect, and are in line with the international community. In the context of water scarcity, reclaimed water can replace conventional water resources for farmland irrigation, industrial utilization, landscape environment utilization, etc., and has broad prospects. Currently, the increase in the utilization rate of reclaimed water is mainly limited by costs and construction of reclaimed water networks. The price factor is the key to promoting the use of reclaimed water. In the future, authorities such as the Ministry of Water Resources and the Ministry of Ecology and Environment are expected to expand the field and scale of use of unconventional water sources, promote pilot allocation of reclaimed water use in typical regions, and coordinate relevant departments to increase financial support.

Operator: Cash Bull, High Dividends:

Since the water supply industry is closely related to life and industrial production, has obvious rigidity, and most water supply projects have been put into operation, the overall operation of water companies is stable, with cash flow advantages and strong dividend attributes. At the same time, compared with developed countries, the price of water supply in China is low. The increase in water prices may be the general trend in the future. A sharp rise in volume and price is expected to ensure that water companies maintain high dividends.

Investment advice: China's water resources are relatively scarce. The amount of water resources per capita is only about 35% of the world average. Nearly two-thirds of cities have experienced varying degrees of water shortages. After two consecutive years of major droughts, more and more attention has been paid to water resource safety, and conservation and intensive use has become a development trend, which is expected to bring new development opportunities to the water treatment industry. The water supply and water treatment industry is closely related to life and industrial production. The upward trend in volume and price is expected to guarantee profitability. At the same time, the company has abundant cash flow and strong dividend sustainability. Focus on Hongcheng Environment, a benchmark water operation company, Chongqing Water, Guangdong Investment, China Water, Pioneering Environmental Protection, and Beikong Water Group (00371); focus on Jinke Environment (688466.SH), a representative enterprise for sewage recycling.

Risk warning: Policy impetus falls short of expectations; water supply prices and sewage service charges are not adjusted in a timely manner; climate change.