China Water Affairs Group (855)

Business description

China Water Affairs Group owns and operates regulated water supply assets across 50 cities in mainland China, serving 10 million customers in the residential, commercial and industrial sectors.

Y/E Mar Revenue (HK$m) EBITDA (HK$m) PBT (HK$m) EPS (c) P/E (x) P/CF (x)
2016A 4740.0 1951.0 1505.0 40.1 13.0 N/A
2017A 5708.0 2647.0 1963.0 55.4 9.4 N/A
2018E 7103.0 2831.0 2159.0 59.9 8.7 N/A
2019E 8526.0 3283.0 2536.0 70.4 7.4 N/A

Last updated on 13/09/2017

Investment summary

China Water Affairs (CWA) delivered a CAGR of 24.7% in top-line growth and a CAGR of 23.4% in EBITDA in FY12-17. We expect its growth story to continue with volume/price increases in the Chinese market and the opportunity to acquire underperforming assets from local governments. We forecast revenue to increase 25% in FY18 and 20% in FY19 (vs consensus of 19% and 14%, respectively), on the back of a 50% increase in capex in FY17 under service concession contracts. Its net debt of HK$6.2bn and net debt to equity ratio of 70% are at a historical high. The management of capex spending and the pace of acquisitions will be a delicate balancing act against the level of leverage. We reduce our fair value by 6% from HK$7.12/share to HK$6.71/share based on sum-of-parts EV/EBITDA valuation as we lower our revenue forecasts for FY18 and FY19 by 6% and 7%, respectively (given CWA’s reported FY17 sales were 9% below our previous estimates).

Last updated on 13/09/2017

Industry outlook

We forecast significant growth in Chinese water supply. Water supply lags behind waste water treatment in terms of private operator penetration. CWA estimates that private enterprises account for only 20% of the water supply industry, whereas the same figure for waste water treatment is more like 60%. The fact that privatised water supply has so far to catch up with water treatment offers another growth engine for CWA’s addressable market.

Last updated on 06/09/2017

Key management

Duan Chuan Liang, Chairman
Ding Bin, Executive director
Liu Yu Jie, Executive director
Li Zhong, Executive director

Company address

Suite 6408, 64/F, Central Plaza
18 Harbour Road
Wanchai
Hong Kong
+852 3968 6666
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