In a report released today, Patricia Yeung from DBS maintained a Buy rating on China Water Affairs Group (CWAFF – Research Report), with a price target of HK$5.30.
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Patricia Yeung’s rating is based on several compelling factors. Firstly, China Water Affairs Group (CWA) has a stable and regulated revenue stream from its extensive water supply operations across China, which ensures a steady cash flow. The company boasts a significant capacity of over 16 million tons per day, covering a wide geographical area, and is a preferred partner for municipal governments when acquiring new projects. Additionally, CWA is expanding its business by developing a direct drinking water segment, which is less capital-intensive and offers potential for higher returns due to unregulated pricing.
Despite a high net debt-equity ratio, CWA’s financial outlook remains promising. The company is expected to achieve approximately 7% to 9% annual revenue growth in the fiscal years 2024-2025, driven by increased water consumption from newly acquired projects, industrial users, and tariff hikes for several projects. The direct drinking water business also requires less capital expenditure, which could improve the company’s return on equity and earnings quality. Furthermore, plans to spin off the direct drinking water and water supply operations could strengthen CWA’s balance sheet, supporting the Buy rating with a target price of HKD5.30.
According to TipRanks, Yeung is an analyst with an average return of -3.6% and a 55.81% success rate. Yeung covers the Utilities sector, focusing on stocks such as Huaneng Power International, ENN Energy Holdings, and China Resources Gas Group.