According to the research report released by Zhongtai International on Smart Finance, the main reason for the lower-than-expected performance of China Water (00855) was the 1.3% YoY decrease in water supply operation revenue. However, if the impact of RMB exchange rate fluctuations is excluded, the revenue increased by 4.5% YoY to RMB 3.01 billion under a 2.6% YoY growth in water supply. In addition, the performance was also affected by the weak real estate market, cautious expansion of pipeline direct drinking water business, and retreat of non-core businesses. Based on the FY24 performance and outlook, Zhongtai International set the target price for China Water at HKD 6.30, corresponding to 6.5 times FY25 P/E ratio and a 21.9% upside. It maintains a "buy" rating.

Zhongtai International also continued to say that the total revenue of the pipeline direct drinking water business increased by 31.4% YoY to RMB 1.72 billion in FY24 (accounting for 13.4% of the company's total revenue), with growth rate lower than that of FY23's 88.9%. Considering the capital needs and market risks, the bank expects the business to develop at a more reasonable pace.

In addition, four projects of China Water received price increases in FY24, with half in water supply and half in sewage treatment. Among them, two water supply projects are located in Hanchuan, Hubei and Huaihua, Hunan, with a combined operating capacity of 65,000 tons/day, accounting for only 0.1% of the company's total water supply capacity. However, the company indicated that more than 20 water supply projects have initiated price adjustment applications pending government review, accounting for about one third of the company's total water supply capacity. If all price adjustment applications are approved, the bank expects that it will be fully reflected no earlier than FY26.