Interim results confirmed that China Water Affairs Group Ltd (HK:0855) continues to grow rapidly. We remain optimistic about CWA’s capacity to extend this growth trajectory and see the 50% increase in the interim dividend payment as evidence of management’s confidence in the outlook. In our view, the rating of the shares does not reflect the growth prospects.
H119 growth broadly in line with FY19 estimates
CWA achieved growth in revenue, net profit to shareholders, EPS and DPS (versus H118) of 17.9%, 20.3%, 14.9% and 50% respectively. The outcome compared to our previously published FY19 projections for year-on-year growth of 18% in revenue, 15.5% in net profits 13% in EPS and 13% in DPS. The core business of water supply and environmental protection, saw revenue increase by 21.5% and operating profits by 19.3% The core business now accounts for 96.6% of group revenues and 98.7% of profits, up 3% and 2% respectively. Increases in water volume sold, tariff hikes, new connections and contribution from new projects all contributed to increased profits. The environmental business in particular, which CWA has earmarked for a separate listing, achieved rapid growth in revenues and operating profits (+81.0% versus Edison FY19e +21%) and contributed 18.9% of group profits. Net debt of HK$8,299m is expected to decline in H2, with FY19 disposals of at least HK$780m of non-core assets and the receipt of HK$423.8m from strategic investors in the environmental business.
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