China Water Affairs Group: Growth Story Continues
Edison | Sep 13, 2017 06:35AM ET
China Water Affairs (HK:0855) (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).
FY17: Growth and profitability on track
CWA posted 20% growth in revenue and 34% growth in EBITDA in FY17. Operating cash flows increased by 25% y-o-y to HK$1,454m. Meanwhile, capex increased 50% to HK$1,910m, mainly on water supply capacity expansion under service concession agreements as the sole water supplier in different regions. Net debt increased by 48% to HK$6.2bn, bringing CWA’s net debt to equity ratio from 50% in FY16 to 70% in FY17, a level comparable to HK-listed peers.
To read the entire report please click on the pdf file below:
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.