Company Information [Company Overview](index=2&type=section&id=公司資料) This section outlines the company's fundamental information, including its governance structure, key personnel, and principal professional partners - The company's Board of Directors comprises executive, non-executive, and independent non-executive directors, with three sub-committees: Audit, Remuneration, and Nomination[6](index=6&type=chunk) - The company's auditor is PricewaterhouseCoopers[7](index=7&type=chunk) - The company's principal bankers include Asian Development Bank, Bank of East Asia, and China Construction Bank[7](index=7&type=chunk) [Business Segments](index=4&type=section&id=業務分佈) The company operates across multiple Chinese provinces, focusing on urban water supply, piped direct drinking water, and environmental protection, serving millions of people - Urban water supply is the company's core business, estimated to serve over **30 million people** with approximately **151,000 kilometers** of pipelines[9](index=9&type=chunk) - Piped direct drinking water supply, a growth area, is estimated to serve approximately **12 million people**[9](index=9&type=chunk) - Environmental protection business covers wastewater treatment operations and construction, as well as drainage operations[9](index=9&type=chunk) Financial Summary [Overall Financial Performance](index=5&type=section&id=財務摘要) For the year ended March 31, 2025, the Group experienced a revenue decline of 9.4% and a 29.9% decrease in profit attributable to owners, yet maintained stable dividends per share Performance Summary (For the year ended March 31) | Indicator | 2025 (HKD thousands) | 2024 (HKD thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | 11,655,565 | 12,858,515 | -9.4% | | Gross Profit | 4,404,978 | 4,775,964 | -7.8% | | Profit for the Year | 2,028,078 | 2,591,357 | -21.7% | | Profit Attributable to Owners of the Company | 1,074,633 | 1,533,543 | -29.9% | | Basic Earnings Per Share | 0.66 HKD | 0.94 HKD | -29.8% | | Total Dividend Per Share | 28 HK cents | 28 HK cents | – | Balance Sheet Summary and Ratios (As at March 31) | Indicator | 2025 (HKD thousands) | 2024 (HKD thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 65,891,643 | 63,242,070 | 4.2% | | Total Liabilities | 44,018,957 | 41,789,528 | 5.3% | | Net Assets | 21,872,686 | 21,452,542 | 2.0% | | Gearing Ratio | 66.8% | 66.1% | | [Segment Performance Analysis](index=6&type=section&id=分部業績分析) Urban water supply remained the core revenue and profit driver, while environmental protection business saw significant growth, contrasting with a substantial decline in piped direct drinking water supply Revenue and Profit Contribution by Business Segment in 2025 | Business Segment | Revenue Contribution | Profit Contribution | | :--- | :--- | :--- | | Urban Water Supply Business | 64.3% | 64.0% | | Piped Direct Drinking Water Supply Business | 5.6% | 6.2% | | Environmental Protection Business | 13.1% | 14.3% | | General Contracting Construction and Others | 17.0% | 15.5% | [Urban Water Supply Business Analysis](index=7&type=section&id=1.%20城市供水業務分析) Urban water supply revenue decreased by 9.4% due to reduced construction, but segment profit slightly increased by 0.1% due to cost control, with operating revenue becoming more prominent Urban Water Supply Business Financial Performance | Indicator | 2025 (HKD millions) | 2024 (HKD millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | 7,498.1 | 8,276.4 | -9.4% | | Profit | 2,492.9 | 2,490.2 | +0.1% | - The increase in profit was primarily due to cost control over sales costs and the net effect of reduced overall installation, maintenance, and construction projects during the year[40](index=40&type=chunk) [Piped Direct Drinking Water Supply Business Analysis](index=8&type=section&id=2.%20管道直飲水供應業務分析) Piped direct drinking water supply business experienced significant adjustments this year, with revenue decreasing by 61.9% to HKD 0.66 billion and segment profit declining by 58.9% to HKD 0.24 billion, mainly due to reduced installation, maintenance, and construction projects Piped Direct Drinking Water Supply Business Financial Performance | Indicator | 2025 (HKD millions) | 2024 (HKD millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | 656.8 | 1,721.9 | -61.9% | | Profit | 243.2 | 591.7 | -58.9% | - The decline in performance was primarily due to an overall decrease in installation, maintenance, and construction projects during the year[41](index=41&type=chunk) [Environmental Protection Business Analysis](index=9&type=section&id=3.%20環保業務分析) Environmental protection business was a growth highlight this year, with revenue increasing by 42.2% to HKD 1.52 billion and segment profit rising significantly by 56.9% to HKD 0.56 billion, driven by increased operating services from new wastewater treatment projects Environmental Protection Business Financial Performance | Indicator | 2025 (HKD millions) | 2024 (HKD millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | 1,523.5 | 1,071.5 | +42.2% | | Profit | 555.8 | 354.2 | +56.9% | - The performance growth was primarily due to increased wastewater treatment operating services from new projects during the year[42](index=42&type=chunk) Chairman's Statement [Financial and Business Performance](index=10&type=section&id=財務表現) During the reporting period, the Group strategically optimized its development, prioritizing project returns, which led to a 9.4% decrease in total revenue to HKD 11.66 billion and a 29.9% decrease in profit attributable to owners to HKD 1.07 billion, while maintaining a stable dividend policy with a payout ratio increasing to 42.4% - The Group strategically slowed down construction business, prioritizing projects with better returns, leading to a decrease in related construction revenue[33](index=33&type=chunk)[39](index=39&type=chunk) Annual Key Financial Indicators | Indicator | Amount | Year-on-Year Change | | :--- | :--- | :--- | | Revenue | HKD 11.66 billion | -9.4% | | Gross Profit | HKD 4.41 billion | -7.8% | | Profit Attributable to Owners | HKD 1.08 billion | -29.9% | | Basic Earnings Per Share | HKD 0.66 | -29.8% | - Total annual dividend remained at **28 HK cents per share**, with the dividend payout ratio increasing from approximately **29.8%** to approximately **42.4%**[35](index=35&type=chunk) - In January 2025, the company successfully issued **RMB 1 billion** of 3.45% secured blue bonds for offshore debt repayment and projects under the blue-green financing framework[45](index=45&type=chunk) [Future Outlook](index=13&type=section&id=未來展望) Looking ahead, the Group anticipates benefiting from domestic water price marketization reforms and declining financing costs, continuing to deepen the synergistic development of its "water supply + direct drinking water" dual core businesses, and expanding value-added services to consolidate its industry leadership - Accelerated market-oriented water pricing mechanisms are expected to improve the company's profitability, with reforms in Guangzhou and Shenzhen serving as catalysts[47](index=47&type=chunk) - The core strategy is to strengthen the synergistic development of water supply and direct drinking water dual core businesses, promoting a quality leap from "safe water" to "healthy water"[47](index=47&type=chunk) - The Group aims to seize green and low-carbon transformation opportunities, expand value-added services like direct drinking water, and cultivate new sustainable growth drivers[47](index=47&type=chunk) [Liquidity and Financial Resources](index=14&type=section&id=流動資金及財務資源) The Group maintained a healthy liquidity position with HKD 5.45 billion in cash and equivalents at year-end, and despite a net current liability of HKD 3.79 billion, the directors believe the Group has sufficient working capital to meet its financial obligations for the next 12 months Liquidity and Financial Position (As at March 31, 2025) | Indicator | Amount | | :--- | :--- | | Cash and cash equivalents and pledged deposits | Approximately HKD 5.45 billion | | Gearing Ratio | 66.8% | | Net current liabilities | HKD 3.79 billion | | Total outstanding borrowings | HKD 25.19 billion | | Undrawn loan facilities | HKD 13.35 billion | - The Group manages foreign exchange risk arising from RMB exchange rate fluctuations through measures such as entering into currency swap contracts with banks[54](index=54&type=chunk) - The Group has various assets pledged as collateral for loan financing, including water supply concession rights, shares in subsidiaries, property, plant and equipment, and investment properties[55](index=55&type=chunk) Biographies of Directors and Senior Management [Directors and Senior Management Profiles](index=17&type=section&id=董事及高級管理人員履歷) This section details the backgrounds, qualifications, and industry experience of the company's executive directors, non-executive directors, independent non-executive directors, and senior management, highlighting the core management team's extensive experience in water affairs, financial management, investment, and corporate governance - Mr. Duan Chuanliang, Chairman and Executive Director, is the founder of the Group's water business and possesses over **30 years** of experience in China's water industry[61](index=61&type=chunk) - The executive director team members have professional backgrounds in financial management, infrastructure project investment and operation, smart water solutions, and corporate management[62](index=62&type=chunk)[63](index=63&type=chunk) - Non-executive and independent non-executive directors come from diverse backgrounds, including financial services, insurance, securities, and accounting, bringing varied professional perspectives to the Board[64](index=64&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) Corporate Governance Report [Corporate Governance Practices](index=21&type=section&id=企業管治常規) The company is committed to maintaining high standards of corporate governance, having complied with most provisions of the Corporate Governance Code during the reporting period, with explained deviations regarding the roles of Chairman and CEO and directors' retirement by rotation - The company complied with all applicable provisions of the Corporate Governance Code, with deviations only from Rule C.2.1 (roles of Chairman and Chief Executive), B.2.2 (Chairman's retirement by rotation), and C.1.6 (some directors' attendance at general meetings)[73](index=73&type=chunk)[74](index=74&type=chunk) - The company explained that the structure where Chairman and Chief Executive duties are jointly undertaken by executive directors contributes to strong and consistent leadership, and the Chairman's re-election provides consistent leadership for executing long-term strategies[73](index=73&type=chunk)[74](index=74&type=chunk) - The Group's core values are "Water as the Foundation, Achieving Social Good," embodying virtues of fairness, resilience, and purity, guiding the company's relationships with stakeholders[76](index=76&type=chunk) [Board and Committees](index=23&type=section&id=董事會及董事委員會) The Board comprises twelve directors, including four executive, four non-executive, and four independent non-executive directors, meeting listing rule requirements, with Audit, Remuneration, and Nomination Committees predominantly or entirely composed of independent non-executive directors to ensure independence and professionalism - The Board consists of **12 members**, including **4 independent non-executive directors**, complying with Listing Rules requirements[79](index=79&type=chunk) - The Audit Committee and Remuneration Committee members are all independent non-executive directors, while the Nomination Committee comprises one executive director and three independent non-executive directors[83](index=83&type=chunk)[85](index=85&type=chunk)[89](index=89&type=chunk) - The company has adopted a Board Diversity Policy, considering factors such as gender, age, and professional experience; as of the reporting period end, there are **four female members** on the Board[91](index=91&type=chunk) Board Meeting Attendance Record (Partial) | Director Name | Board | Audit Committee | Remuneration Committee | Nomination Committee | | :--- | :--- | :--- | :--- | :--- | | Mr. Duan Chuanliang (Chairman) | 4/(4) | Not Applicable | Not Applicable | 3/(3) | | Mr. Zhou Jinrong (Independent Director) | 4/(4) | 2/(2) | 3/(3) | 3/(3) | | Mr. Shao Ziming (Independent Director) | 4/(4) | 2/(2) | 3/(3) | 3/(3) | | Ms. He Ping (Independent Director) | 4/(4) | 2/(2) | 3/(3) | 3/(3) | [Risk Management and Internal Control](index=28&type=section&id=風險管理及內部監控) The Board holds ultimate responsibility for the Group's risk management and internal control systems, continuously reviewing their effectiveness, with a structured framework involving the Board, Audit Committee, management, and internal audit team, which was deemed effective and sufficient during the reporting period - The Group's risk management framework is structured into four levels: the Board (strategy formulation), Audit Committee (oversight), management (design and implementation), and internal audit team (evaluation and reporting)[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[111](index=111&type=chunk) - The Board has reviewed the effectiveness of the risk management and internal control systems for the current year and deemed them effective and sufficient[109](index=109&type=chunk) - The Group has an anti-corruption and whistleblowing system, allowing employees and other stakeholders to report misconduct via hotline or email to the internal audit department or Audit Committee[110](index=110&type=chunk) [Shareholder Rights and Communication](index=30&type=section&id=股東權利及與股東溝通) The company communicates with shareholders through various channels, including reports and announcements, and has an investor relations team, allowing shareholders to exercise rights through general meetings, with a dividend policy targeting a payout ratio of no less than 30% of basic earnings per share - Shareholders holding not less than **10%** of the paid-up capital may request the Board to convene an extraordinary general meeting[114](index=114&type=chunk) - The company has adopted a dividend policy, targeting a dividend payout ratio of no less than **30%** of basic earnings per share for each financial year[118](index=118&type=chunk) Directors' Report [Principal Risks and Uncertainties](index=33&type=section&id=主要風險及不明朗因素) The Group faces principal risks including operational, liquidity, and legal and regulatory compliance risks, which are managed through established mechanisms such as standardized operating procedures, close monitoring of cash flow and compliance status, and regular risk assessments - Operational risk refers to the risk of loss resulting from inadequate internal processes, people, or systems, or from external events, managed through standardized operating procedures across functional divisions and departments[129](index=129&type=chunk) - Liquidity risk refers to the risk of being unable to meet loan agreement obligations, mitigated by closely monitoring compliance and cash flow levels[130](index=130&type=chunk) - Legal and regulatory compliance risk refers to risks arising from changes in government laws and regulations, addressed by closely monitoring market regulatory developments and consulting external advisors[131](index=131&type=chunk) [Share Repurchases](index=35&type=section&id=購買、贖回或出售本公司之上市證券) During the year ended March 31, 2025, the company repurchased a total of 4,774,000 ordinary shares on the Stock Exchange for approximately HKD 27.52 million, all held as treasury shares Details of Share Repurchases During the Year | Year/Month | Number of Shares Repurchased | Highest Price Per Share (HKD) | Lowest Price Per Share (HKD) | Total Consideration (HKD) | | :--- | :--- | :--- | :--- | :--- | | October 2024 | 380,000 | 5.17 | 4.90 | 1,918,000 | | February 2025 | 2,160,000 | 6.05 | 5.78 | 12,948,000 | | March 2025 | 2,234,000 | 5.80 | 5.45 | 12,649,000 | | **Total for the Year** | **4,774,000** | | | **27,515,000** | [Major Shareholders](index=40&type=section&id=主要股東) As of March 31, 2025, the company's major shareholders included Chairman Mr. Duan Chuanliang (approximately 27.29% stake) and ORIX Corporation (approximately 27.27% stake), with Qingdao Haifa State-owned Capital Investment and Operation Group Co., Ltd. and Great Wall Life Insurance Co., Ltd. also holding over 5% Major Shareholder Holdings (As at March 31, 2025) | Shareholder Name | Approximate Percentage of Shareholding | | :--- | :--- | | Mr. Duan Chuanliang | 27.29% | | ORIX Corporation | 27.27% | | Qingdao Haifa State-owned Capital Investment and Operation Group Co., Ltd. | 7.52% | | Great Wall Life Insurance Co., Ltd. | 5.02% | [Connected Transactions](index=41&type=section&id=關連交易) During the reporting period, the Group engaged in a continuing connected transaction involving the purchase of piped direct drinking water system equipment and services from Jiangxi Yinli Direct Drinking Water Equipment Co., Ltd., a connected subsidiary, with the transaction amount of approximately HKD 27.79 million falling below the annual cap and confirmed by independent non-executive directors as fair and reasonable - The Group entered into a framework agreement with Jiangxi Yinli, a connected subsidiary, for the procurement of piped direct drinking water equipment and services[176](index=176&type=chunk) Continuing Connected Transactions with Jiangxi Yinli | Period | Annual Cap | Actual Transaction Amount for the Year | | :--- | :--- | :--- | | April 1, 2024 to March 31, 2025 | RMB 80,000,000 | Approximately RMB 25,563,000 | - Independent non-executive directors and the company's auditor have reviewed these transactions and confirmed they were conducted on normal commercial terms, are fair and reasonable, and comply with Listing Rules requirements[179](index=179&type=chunk)[181](index=181&type=chunk) Independent Auditor's Report [Opinion](index=44&type=section&id=意見) PricewaterhouseCoopers, the auditor, issued an unmodified opinion on the Group's consolidated financial statements, affirming they present a true and fair view of the Group's consolidated financial position as at March 31, 2025, and its financial performance and cash flows for the year then ended, in compliance with the disclosure requirements of the Hong Kong Companies Ordinance - PricewaterhouseCoopers, the auditor, believes that the consolidated financial statements present a true and fair view of the Group's financial position and performance in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants[192](index=192&type=chunk) [Key Audit Matters](index=45&type=section&id=關鍵審計事項) The auditor identified three key audit matters due to significant management judgment and estimation uncertainty: accounting for concession service arrangements, impairment testing of goodwill and other intangible assets, and net realizable value assessment of properties under development and properties held for sale, for which appropriate audit procedures were performed - Key Audit Matter 1: Accounting for concession service arrangements, as determining the appropriateness of accounting treatment requires significant management judgment and assumptions, especially regarding revenue recognition for construction services[199](index=199&type=chunk)[202](index=202&type=chunk) - Key Audit Matter 2: Impairment testing of goodwill and other intangible assets, due to high uncertainty in significant assumptions applied when calculating recoverable amounts, such as usage growth, water tariffs, and discount rates[205](index=205&type=chunk)[207](index=207&type=chunk) - Key Audit Matter 3: Net realizable value assessment of properties under development and properties held for sale, as determining net realizable value involves inherent estimation uncertainty regarding future selling prices and completion costs[215](index=215&type=chunk) Consolidated Financial Statements [Consolidated Statement of Profit or Loss](index=53&type=section&id=綜合損益表) For the year ended March 31, 2025, the Group recorded revenue of HKD 11.66 billion, a 9.4% decrease from HKD 12.86 billion last year, with operating profit at HKD 3.53 billion, down 12.9% year-on-year, and profit for the year at HKD 2.03 billion, of which profit attributable to owners was HKD 1.07 billion, a 29.9% decrease Consolidated Statement of Profit or Loss Summary | Item | 2025 (HKD thousands) | 2024 (HKD thousands) | | :--- | :--- | :--- | | Revenue | 11,655,565 | 12,858,515 | | Gross Profit | 4,404,978 | 4,775,964 | | Profit from operations | 3,527,513 | 4,050,171 | | Profit before income tax | 2,750,145 | 3,369,658 | | Profit for the year | 2,028,078 | 2,591,357 | | Profit attributable to owners of the Company | 1,074,663 | 1,533,543 | [Consolidated Statement of Financial Position](index=55&type=section&id=綜合財務狀況表) As at March 31, 2025, the Group's total assets were HKD 65.89 billion, total liabilities were HKD 44.02 billion, and net assets were HKD 21.87 billion, with non-current assets comprising the majority at HKD 48.27 billion, primarily other intangible assets (mainly concession rights) at HKD 34.16 billion, and a net current liability of HKD 3.79 billion Consolidated Statement of Financial Position Summary (As at March 31) | Item | 2025 (HKD thousands) | 2024 (HKD thousands) | | :--- | :--- | :--- | | **Assets** | | | | Non-current assets | 48,271,896 | 46,366,408 | | Current assets | 17,619,747 | 16,875,662 | | **Total Assets** | **65,891,643** | **63,242,070** | | **Liabilities and Equity** | | | | Current liabilities | 21,409,424 | 20,747,409 | | Non-current liabilities | 22,609,533 | 21,042,119 | | **Total Liabilities** | **44,018,957** | **41,789,528** | | **Total Equity** | **21,872,686** | **21,452,542** | [Consolidated Statement of Cash Flows](index=59&type=section&id=綜合現金流量表) For the current year, the Group generated net cash from operating activities of HKD 3.39 billion, an increase from the previous year, while net cash used in investing activities was HKD 2.87 billion, significantly lower than last year, and net cash used in financing activities was HKD 0.44 billion, resulting in a net increase in cash and cash equivalents of HKD 82.26 million, with a year-end balance of HKD 4.77 billion Consolidated Statement of Cash Flows Summary | Item | 2025 (HKD thousands) | 2024 (HKD thousands) | | :--- | :--- | :--- | | Net cash generated from operating activities | 3,393,646 | 2,777,301 | | Net cash used in investing activities | (2,873,195) | (5,433,838) | | Net cash (used in) / generated from financing activities | (438,196) | 605,348 | | Net increase / (decrease) in cash and cash equivalents | 82,255 | (2,051,189) | | Cash and cash equivalents at end of year | 4,771,795 | 4,804,799 |

Group 1: Market Developments - Hong Kong Stock Exchange will lower the minimum price fluctuation for stocks starting August 4, 2025, following successful market rehearsals and regulatory approvals [1] - The Hang Seng Index's ADR closed at 24,987.99 points, down 6.15 points or 0.02% [3] Group 2: Index Adjustments - The Hang Seng Index announced changes to the calculation method of the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index, effective from the index review on June 30, 2025 [2] Group 3: Company Earnings - Cathay Pacific reported a 23.3% year-on-year increase in passenger numbers, carrying approximately 2.9 million passengers in June 2025 [8] - China Longgong expects a significant increase in net profit for the first half of 2025, estimated between RMB 590 million and RMB 665 million, representing a year-on-year increase of 29% to 45% [11] - Meitu Company anticipates a 65% to 72% year-on-year growth in adjusted net profit for the first half of 2025 [10] - Hengtou Securities expects a net profit of approximately RMB 239 million for the first half of 2025, a significant increase from RMB 53.87 million in the same period last year [14] - Huiri Group forecasts a consolidated profit of approximately HKD 250 million for the first half of 2025, up from HKD 37 million in the previous year [15] - Harbin Electric anticipates a net profit of approximately RMB 1.02 billion for the first half of 2025, a substantial increase from RMB 523 million in the same period last year [21] Group 4: Strategic Initiatives - Multiple departments released implementation details for cross-border asset management pilot business in Hainan Free Trade Port, allowing foreign investors to invest in various financial products [6] - Dongyangguang Jiangsu Pharmaceutical and Dongyangguang Pharmaceutical's merger agreement was approved by shareholders, with the new entity expected to be listed on August 7, 2025 [13] - Global New Materials International's acquisition of Merck's surface solutions business was approved by a special shareholder meeting, with a transaction value of EUR 665 million [17] Group 5: Industry Trends - GGII reported that China's power battery installation capacity reached approximately 288.1 GWh in the first half of 2025, a year-on-year increase of 44% [5] - The key product DB-1310 from InnoCare Pharma has received fast track designation from the FDA for treating advanced non-small cell lung cancer [20]

Group 1 - The core announcement involves a bondholder, Mr. Duan Chuanliang, exchanging convertible bonds for 547 million shares of Kangda Environmental, representing approximately 25.55% of the company's total issued share capital as of the announcement date [1] - Following the exchange, Mr. Duan and Sharp Profit will collectively hold rights to 1.156 billion shares, amounting to about 54.01% of the total issued share capital [1] - Sharp Profit, a wholly-owned subsidiary of China Water Affairs, is a major shareholder with approximately 28.46% of the company's issued share capital as of the announcement date [1] Group 2 - The company has 214 million stock options that have vested, allowing option holders to subscribe for shares at an exercise price of HKD 0.30 per share [2] - According to takeover rules, Mr. Duan must make an appropriate offer to option holders for all unexercised options [2] - The offer price for the shares is set at HKD 0.348 per share, which is higher than the conversion price of HKD 0.25 per share under the convertible bonds [2]

Group 1 - The core announcement involves the exchange of convertible bonds by Kanda Environmental, allowing bondholders to convert their bonds into 546,728,004 shares, representing approximately 25.55% of the company's total issued share capital at an exchange price of HKD 0.25 per share [1] - Following the completion of the exchange on July 21, 2025, the combined ownership of Duan Chuanliang and Sharp Profit will amount to 1,155,718,004 shares, which is about 54.01% of the total issued share capital of the company [1] - Sharp Profit, a wholly-owned subsidiary of China Water, is a major shareholder, holding approximately 28.46% of the company's total issued share capital as of the date of the announcement [1] Group 2 - Due to the bond exchange, Duan Chuanliang is required to make a mandatory unconditional cash offer for all shares, excluding those already owned or agreed to be acquired by him and Sharp Profit [2] - Duan and Sharp Profit will act as joint offerors for the share offer, with an expected acquisition distribution of approximately 93.00% and 7.00% respectively [2] - China Water, through its subsidiary Sharp Profit, is positioned to maintain or increase its strategic investment in the company, which is primarily engaged in urban water supply, wastewater treatment, and environmental services [2]

香港交易及結算所有限公司及香港聯合交易所有限公司對本聯合公告的內容概不負 責，對其準確性或完整性亦不發表任何聲明，並明確表示，概不對因本聯合公告全 部或任何部分內容而產生或因倚賴該等內容而引致的任何損失承擔任何責任。 本聯合公告僅供參考，並不構成收購、購買或認購本公司證券之邀請或要約，亦 非在任何司法權區招攬任何投票或批准。 本聯合公告之全部或部分內容不得在、向或從任何將構成違反其適用法律或法規 之司法權區發佈、刊發或分發。 段傳良先生 （於開曼群島註冊成立並遷冊往百慕達之有限公司） （股份代號：855） KANGDA INTERNATIONAL ENVIRONMENTAL COMPANY LIMITED （於開曼群島註冊成立的有限公司） （股份代號：6136） 康 達 國 際 環 保 有 限 公 司 SHARP PROFIT INVESTMENTS LIMITED 聯合公告 (1)第一上海證券有限公司代表聯合要約人 提出強制性無條件現金要約 以收購康達國際環保有限公司全部已發行股份 聯合要約人的要約代理 第一上海證券有限公司 聯合要約人的財務顧問 第一上海融資有限公司 獨立董事委員會的獨立財務顧問 – 1 ...

Core Viewpoint - The company experienced a significant decline in performance due to a one-time provision for expected credit losses of HKD 498 million, leading to a year-on-year drop in net profit by 29.9% in FY2025 [1] Group 1: Financial Performance - In FY2025, the company reported revenue of HKD 11.656 billion, a decrease of 9.4% year-on-year, and a net profit of HKD 1.075 billion, down 29.9% year-on-year [1] - The one-time provision for other receivables resulted in an expected credit loss of HKD 498 million, significantly impacting the company's year-on-year performance [1] Group 2: Business Segments - In the water supply segment, urban water supply revenue was HKD 7.498 billion, a decrease of 9.4%, while the segment profit was HKD 2.493 billion, an increase of 0.1% [2] - The operating income in the water supply segment grew by 6.5% to HKD 3.526 billion, while construction services declined by 27.9% to HKD 2.833 billion [2] - In the direct drinking water business, operating services increased by 7.2% to HKD 315 million, but construction services fell by 82.8% to HKD 220 million [2] Group 3: Cash Flow and Dividends - A turning point in free cash flow is expected in FY2025, with capital expenditures dropping to approximately HKD 3.4 billion from a historical high of HKD 5.3 billion in FY2024 [3] - The total dividend for FY2025 is maintained at HKD 457 million, consistent with FY2024, with a dividend payout ratio of 42.53% [3] - With the continuous improvement in free cash flow, there is significant potential for an increase in dividends [3]

Core Viewpoint - China Water Affairs (00855) is currently valued at a significant discount compared to its peers, with a target price of HKD 7.80 and a "Buy" rating from CITIC Securities, reflecting a 20% valuation discount based on a target PE of 10x for FY2025 [1] Group 1: Financial Performance - The company's overall gross margin improved by 0.7 percentage points to 37.8% in FY2025, with notable increases in profitability across all business segments, including urban water supply, pipeline drinking water, and environmental protection [2] - The company’s sales, management, and financial expense ratios showed mixed changes, with financial expenses increasing due to a high proportion of US dollar debt, but there is potential for reduction through debt restructuring and a declining interest rate environment [2] Group 2: Growth Drivers - In FY2025, the company commissioned 81.7 million tons per day of new water production capacity, leading to a 7.0% increase in water sales volume to 1.5 billion tons, with further growth expected as additional capacity comes online in FY2026 [3] - The company has implemented water price adjustments in several projects, with expectations that total adjustments could exceed 1 million tons per day, benefiting from ongoing reforms in water pricing across major cities [3] Group 3: Cash Flow and Dividends - For the first time since 2020, the company achieved positive free cash flow of HKD 1.58 billion in FY2025, supported by a reduction in capital expenditures [4] - The company maintained its dividend at HKD 0.28 per share, with a 12 percentage point increase in the payout ratio to 42%, indicating a commitment to returning value to shareholders [4]

Core Insights - The company reported a total revenue of HKD 12.2 billion for FY2025, a decrease of 5.1% year-on-year, and a net profit attributable to shareholders of HKD 1.075 billion, down 29.9% year-on-year [1][2] Revenue Breakdown - The company's main business revenue was HKD 11.656 billion, a decline of 9.4% year-on-year, primarily due to reduced income from water supply and direct drinking water installation, maintenance, and construction services [2] - Revenue from the urban water supply segment was HKD 7.498 billion, down 9.4% year-on-year, with segment profit slightly increasing by 0.1% to HKD 2.493 billion due to cost control [2] - The direct drinking water segment saw revenue drop by 61.9% to HKD 0.657 billion, with segment profit decreasing by 58.9% [2] - The environmental protection segment achieved revenue of HKD 1.523 billion, up 42.2% year-on-year, with segment profit increasing by 56.9% [2] - Total construction revenue was HKD 0.664 billion, down 19.7% year-on-year, with segment profit decreasing by 9.3% [2] - Property revenue reached HKD 0.361 billion, with segment profit increasing by 16.5% [2] Operational Performance - Water supply operations generated revenue of HKD 3.526 billion, an increase of 6.5% year-on-year, with water sales volume rising by 7.4% to 1.5 billion tons [3] - The average water price was HKD 2.35 per ton, with over 20 projects initiating price adjustment procedures [3] - Direct drinking water operations revenue increased by 7.2% to HKD 0.315 billion, with a compound annual growth rate of 29.8% from FY22 to FY25 [4] - Direct drinking water equipment revenue surged by 226.3% to HKD 0.078 billion [4] Capital Expenditure and Cash Flow - Capital expenditure peaked at HKD 5.33 billion in FY2024 and is projected to decrease to HKD 3.4 billion in FY2025, with a target of under HKD 2 billion for FY2026 [4] - The company maintained a stable total dividend of HKD 0.28 per share, with a dividend payout ratio of 42.5%, reflecting a year-on-year increase of 12.7 percentage points [4] Profit Forecast - The decline in FY2025 performance was primarily due to one-time impairment losses, with net profit forecasts for FY2026 and FY2027 adjusted down to HKD 1.372 billion and HKD 1.387 billion, respectively [4] - The projected net profit for FY2028 is HKD 1.415 billion, corresponding to price-earnings ratios of 7.2, 7.1, and 6.9 times for FY2026, FY2027, and FY2028 [4]

Core Viewpoint - Insurance capital is increasingly active in the capital market, with a significant acceleration in shareholding actions, indicating a strong interest in dividend stocks, particularly in the banking sector and public utilities [1][4]. Group 1: Shareholding Actions - As of July 2, 2025, insurance companies have made 18 shareholding actions, surpassing the total of 20 for the entire year of 2024 and significantly exceeding the 2023 total [1][4]. - Li'an Life announced a shareholding action in Jiangnan Water, increasing its stake from 4.91% to 5.03% after purchasing 1.1 million shares [3]. - Major shareholders like Great Wall Life are also actively buying shares, indicating a trend of increased participation in the market [4]. Group 2: Investment Focus - The focus of insurance capital has shifted towards H-shares and banking stocks, which are favored due to their significant discounts compared to A-shares and high dividend yields above 5% [4][8]. - The stable profitability and low volatility of banking stocks, especially state-owned banks, align with the risk preferences of insurance capital [4][9]. - The regulatory environment has become more favorable, encouraging insurance funds to increase their equity investments, with a reported 34.9 trillion yuan in investment balance as of Q1 2025, a 16.7% year-on-year increase [8]. Group 3: Strategic Implications - Insurance companies are not only focusing on financial returns but also on industrial synergy, as seen in the case of Huaxia Life's investment in Hangzhou Bank to enhance insurance and banking collaboration [5]. - The trend of shareholding actions is expected to continue, with a potential diversification into sectors like public utilities, environmental protection, and transportation, which offer stable cash flows and are less affected by economic cycles [9][10]. - Future investments are likely to prioritize high-dividend, high-capital appreciation potential companies, aligning with the long-term, stable needs of the insurance industry [10].

Investment Rating - The investment rating for China Water Affairs (00855.HK) is "Buy" (maintained) [1] Core Views - The report highlights that the core operational profit is steadily growing, with a cash flow turning point already evident. The decline in FY2025 performance is primarily due to one-time impairment impacts, while the core operational business remains robust [1][7] Financial Performance Summary - For FY2025, the total revenue is projected at HKD 12,200 million, a decrease of 5.12% year-on-year. The net profit attributable to shareholders is expected to be HKD 1,075 million, down 29.92% year-on-year [1][7] - The main business revenue is HKD 11,656 million, reflecting a 9.4% decline year-on-year, mainly due to reduced income from water supply and direct drinking water installation, maintenance, and construction services [1][7] - The report details segment performance: - Urban water supply revenue is HKD 7,498 million, down 9.4% year-on-year, with segment profit slightly up by 0.1% [1] - Direct drinking water revenue is HKD 657 million, down 61.9%, with segment profit down 58.9% [1] - Environmental segment revenue is HKD 1,523 million, up 42.2%, with segment profit increasing by 56.9% [1] - Total construction revenue is HKD 664 million, down 19.7%, with segment profit down 9.3% [1] - Property revenue is HKD 361 million, with segment profit up 16.5% [1] Future Projections - The report forecasts a net profit of HKD 1,372 million for FY2026, HKD 1,387 million for FY2027, and HKD 1,415 million for FY2028, with corresponding P/E ratios of 7.2, 7.1, and 6.9 times [1][7] - Capital expenditures are expected to decrease from HKD 53.3 billion in FY2024 to HKD 34 billion in FY2025, with a target of under HKD 20 billion for FY2026 [1][7] - The dividend per share for FY2025 is projected to remain stable at HKD 0.28, with a payout ratio of 42.5% and a dividend yield of 4.65% [1][7]