Guotai Junan released a research report stating that it covered China's water services (00855) for the first time and gave it an “increase in weight” rating.
The Zhitong Finance App learned that Guotai Junan released a research report stating that it covered China Water (00855) for the first time and gave it an “increase in holdings” rating. The net profit attributable to the company's FY2024-2026 was HK$18.81, 19.73, and HK$2,062 billion, respectively, and the corresponding EPS was HK$1.15, 1.21, and HK$1.26.
The company is a leading integrated water operator in the country. It is the only listed company in the Hong Kong stock market that focuses on the water supply business. The compound growth rate for FY 2014-2023 is 19%, and the cash flow is good. At the same time, the company's dividend rate has remained at 29-30% for the past three years, and dividends are relatively stable. With advanced water purification technology+rich customer resources+excellent brand and service capabilities, the company's direct drinking water business is expected to grow beyond expectations.
Guotai Junan said that China's direct drinking water business from water pipelines is growing strongly. 1) The company began expanding its piped drinking water business in 2015. Currently, it operates more than 3,600 piped direct drinking water projects across the country, serving about 4.5 million people. In 2022, according to the amount of water sold, the company ranked first among all domestic piped direct drinking water supply companies, with a market share of 7.3%. FY2023's direct drinking water business revenue increased 89% year over year to HK$1.31 billion, with a gross profit margin of 44.1%. 2) Along with the improvement in the living standards of Chinese residents and the increase in consumption capacity, combined with the promotion of superimposed policies, the opening of a market space of more than 10 billion dollars for direct drinking water from pipelines has accelerated. 3) Advanced water purification technology+rich government and customer resources+excellent brand and service capabilities have driven the strong growth of the company's direct drinking water business.
The water supply business operated steadily, and the increase in volume and price gradually materialized. 1) Yinlong Water, a wholly-owned subsidiary, is the company's water supply and direct drinking water business platform. In 2022, Yinlong Water ranked sixth among all water supply companies in China in terms of sales volume, with a market share of 0.7%. 2) In terms of water sales volume: Currently, the company's water supply production capacity is 8.3 million tons/day, 1.6 million tons/day under construction, and 4.2 million tons/day under construction, and there is room for capacity expansion and capacity utilization; in the long run, the company's water supply prices will also benefit from the new cycle of water supply price increases in China and gradually rises. There is a clear trend of increasing the volume and price of the water supply business.