Combining China and the West to create a new water company: The company is a comprehensive water company. Its business scope includes tap water production and supply, sewage treatment and reuse of sewage recycling, municipal engineering services. At the same time, the company is expanding water environment treatment services such as water treatment and aquatic ecological restoration in rivers and lake basins. As of June 2023, the company has agreements and planned treatment capacity of about 2.7 million m3/day for tap water production and supply, sewage treatment and reclaimed water reuse operation projects. The projects are distributed in 16 cities in 9 provinces in China, with 26 operating companies, and 1 water supply company in Dhaka, the capital of Bangladesh.

National water network construction aims to open up space for water growth: China's water resources are unevenly distributed between regions and years. The total amount of water resources is abundant but per capita is low. It is listed by the United Nations as one of 13 poor water countries, putting higher demands on flood and drought disaster prevention and control capabilities, water resource intensity and recycling capacity, and ecological environment prevention and control of rivers and lakes. Regarding water supply, reducing the pipeline leakage rate is an important breakthrough in improving the quality and efficiency of water services operations. By 2025, the leak rate of urban public water supply networks across the country will strive to be kept within 9%; “permitted cost+reasonable profit” guarantees long-term stable profits for water supply enterprises, and there is room for price increases in the future. China's economy has moved to a stage of high-quality development, and shortcomings in related water infrastructure are expected to be filled. The “Outline of the National Water Network Construction Plan” proposes construction goals in terms of national water network layout, water resources and water supply guarantee, river and lake ecosystem protection, and smart water networks. Relevant water services and water treatment companies are expected to benefit.

Seek steady progress and expand overseas markets: As of February 2023, the company provided water supply services in 7 cities across the country and Dhaka, Bangladesh. The business scope mainly includes two parts: municipal water supply and industrial park water supply, with a total of 9 water supply projects; 13 sewage treatment projects are in operation, serving 10 cities across the country.

Using cities with great potential for development as entry points, the company is developing a national layout while actively exploring the international market. It invests in a water supply operation company in Dhaka, Bangladesh, with a design water treatment capacity of 340,000 m3/day. Using foreign investment genes and following the “Belt and Road” initiative, the company arranged the South Asian and Southeast Asian markets in an orderly manner, and it is expected that the project will be replicated offsite.

Investment suggestions: As a new star in the water industry, the company has achieved tap water production and supply, sewage treatment and recycling of reclaimed water, and municipal engineering business covering the entire industry chain; China's economy has moved to a stage of high-quality development, and the “Plan Outline” is expected to promote the completion of shortcomings in related water infrastructure; using foreign investment genes, following the “Belt and Road” initiative, the company lays out the South Asian and Southeast Asian markets in an orderly manner, and is expected to replicate the project offsite. The company's 23/24/25 EPS is expected to be 0.39/0.49/0.61 yuan/share, respectively, corresponding to the closing price of PE on February 8, 2024, 27/21/17 times, respectively. The company was given 25 times PE in 2024, with a target price of 12.25 yuan/share. It covered for the first time, and gave it a “careful recommendation” rating.

Risk warning: industry policy risks; local financial pressure; fluctuating raw material prices; project expansion falls short of expectations.