In some areas, water supply price adjustment applications have passed hearings, including projects in Guizhou, Hubei, and Henan, in addition to more than 20 cities that have also initiated price adjustment procedures.

Recently, the state has promoted the formation of a market mechanism for water prices. Given the current macro environment of low inflation and the lagging adjustments of water prices behind the policy-regulated cost benefits, raising water prices has become a common consensus in the market; combined with the fact that both domestic and international interest rate cuts have already begun, this will be beneficial for the profit recovery of water affairs companies and help promote the sustainable healthy growth of water supply enterprises.

Citic sec stated that as the domestic water industry enters a stock operation cycle, capital expenditure intensity has significantly decreased. We believe the industry gradually possesses a high dividend foundation and is expected to produce several benchmark symbols with dividend attributes.

Moreover, the gradual expansion of the industry's loss coverage in recent years and the introduction of the new water price management measures in 2021 provide an objective basis for adjusting residential water prices, indicating that a new round of adjustments to residential water prices is in the works.

With the annual increase in sewerage treatment fees, government subsidy pressures continue to rise, prompting the promotion of a user pays model for sewerage treatment. Considering the recent changes in the supply and drainage industry, we believe the water affairs industry still has growth potential.

According to Zhito Finance APP, China Securities Co., Ltd. released a research report stating that rising costs and the inability to effectively alleviate this pressure are troubling the tap water industry. The model reliant on government subsidies is becoming difficult to sustain, and a new round of price adjustments driven by top-down policies has been initiated, which is expected to streamline the pricing mechanism.

Although the sewerage pricing has been implemented smoothly, the proportion of government subsidies in sewerage treatment fees has been increasing, and the accounts receivable issues for enterprises have worsened, requiring an increase in user payment ratios and advancing government debt reduction efforts to address the ongoing expansion of receivables. Considering the recent changes in the water supply and drainage industry, the water affairs industry still possesses growth attributes.

Leading water sector companies:

China Water (00855): China Water recently released its interim results for the six months ending September 30, 2024, with revenue of approximately 5.953 billion HKD; during the period, profit was 1.238 billion HKD; profit attributable to shareholders was 0.756 billion HKD; earnings per share were 46.29 HK cents, with an interim dividend of 13 HK cents per share proposed. Zhongtai International pointed out that China Water's FY25 interim performance exceeded expectations, with operating revenue growing 16.6% year-on-year to 2.24 billion yuan, and the gross margin also increased by 1.5 percentage points year-on-year to 38.4%.

BJ Ent Water Group (00371): As of June 30, 2023, the group operates 928 sewerage treatment plants and township sewerage treatment facilities in mainland china, as well as 40 reclaimed water treatment plants.