Core Viewpoint - The company reported a decline in total revenue and net profit for the first half of FY2026, with total revenue at HKD 5.183 billion, down 12.9% year-on-year, and net profit at HKD 571 million, down 24.4% year-on-year [1] Revenue Breakdown - The company's revenue decreased by HKD 769 million year-on-year, with the largest declines in the following segments: water supply construction (down HKD 456 million), property sales (down HKD 241 million), water supply connections (down HKD 223 million), and direct drinking water construction (down HKD 80 million) [2] - The net profit of HKD 571 million reflects a 24.4% year-on-year decline, but adjusted for a non-cash loss of HKD 64 million due to a share dilution from a takeover offer, the adjusted net profit would be approximately HKD 635 million, down 15.9% year-on-year [2] Cost Management - The company has successfully reduced costs, with selling and administrative expenses down 9.0% to HKD 437 million and financial expenses down 17.6% to HKD 352 million [2] - The debt-to-asset ratio showed a downward trend, decreasing by 2.5 percentage points to 64.3% at the end of FY26H1 compared to the beginning of the period [2] Segment Performance - In the urban water supply segment, revenue was HKD 3.271 billion, down 13.1%, with segment profit at HKD 941 million, down 17.4%, primarily due to a reduction in installation, maintenance, and construction projects [2] - The pipeline direct drinking water segment saw revenue of HKD 263 million, down 28.3%, with segment profit at HKD 75 million, down 55.2%, also affected by reduced installation and maintenance projects [2] - The environmental segment reported revenue of HKD 832 million, up 8.7%, with segment profit at HKD 367 million, up 29.7%, driven by increased revenue from the Huizhou Daya Bay Mobil project [2] - The total contracting construction segment had revenue of HKD 398 million, down 6.1%, with segment profit at HKD 158 million, down 60.2%, mainly due to a decrease in water supply project construction [2] - The property segment generated revenue of HKD 170 million, with segment profit of HKD 500,000, down 96.4% year-on-year due to a decline in property project sales [2] Water Supply Operations - The company reported a 5% year-on-year increase in water supply volume, with revenue from water supply operations at HKD 1.801 billion, up 4.5% [3] - The average water price was HKD 2.37 per ton, with 8 projects completing price adjustments and over 20 projects initiating price adjustment procedures, which is expected to enhance profit margins [3] Capital Expenditure and Dividends - Capital expenditure decreased by 31.8% to HKD 1.243 billion, while the total dividend remained stable at HKD 0.13 per share, maintaining a dividend yield of 4.8% [4] - The company anticipates steady growth in core water supply operations, with no accounts receivable risk and increasing free cash flow, enhancing dividend capacity [4] Profit Forecast - Due to the ongoing decline in connection and construction revenue, the company has revised its net profit forecasts for FY2026-2028 from HKD 1.372 billion, 1.387 billion, and 1.415 billion to HKD 1.136 billion, 1.206 billion, and 1.232 billion, respectively, corresponding to PE ratios of 8.4, 7.9, and 7.8 times [4]

Core Viewpoint - Dongwu Securities maintains a "buy" rating for China Water Affairs (00855), highlighting the robust growth of its core water supply operations, absence of receivable risks, decreasing capital expenditures, and increasing free cash flow, which enhances its dividend capacity [1] Financial Performance - For the first half of FY26, the company reported total revenue of HKD 5.183 billion and a net profit attributable to shareholders of HKD 571 million, with a reduction in sales and administrative expenses by 9.0% to HKD 437 million and financial expenses down by 17.6% to HKD 352 million [2] - The debt-to-asset ratio showed a downward trend, decreasing by 2.5 percentage points to 64.3% at the end of FY26H1 compared to the beginning of the period [2] Segment Performance - In FY26H1, revenue from urban water supply reached HKD 3.271 billion with a segment profit of HKD 941 million, influenced by a reduction in installation, maintenance, and construction projects [2] - The pipeline drinking water segment generated revenue of HKD 263 million with a segment profit of HKD 75 million [2] - The environmental segment saw revenue of HKD 832 million, up 8.7% year-on-year, with a segment profit of HKD 367 million, a 29.7% increase, primarily due to revenue growth from the Huizhou Daya Bay Mobil project [2] - Total construction contracting revenue was HKD 398 million with a segment profit of HKD 158 million, while the property segment generated revenue of HKD 170 million with a segment profit of HKD 500,000 [2] Water Supply Operations - The company achieved a 5% year-on-year increase in water supply volume, with revenue from water supply operations at HKD 1.801 billion, a 4.5% increase year-on-year [3] - The total water sales volume was 76 million tons, with an average water price of HKD 2.37 per ton; 8 projects completed price adjustments, and over 20 projects have initiated adjustment procedures [3] Direct Drinking Water Strategy - The direct drinking water segment reported revenue of HKD 185 million, with equipment sales increasing by 34.1% to HKD 19 million and bottled water sales soaring by 145.4% to HKD 4 million [4] - Capital expenditures decreased by 31.8% to HKD 1.243 billion, while the total dividend remained stable at HKD 0.13 per share, resulting in a dividend yield of 4.8% [4]

Investment Rating - The report maintains a "Buy" rating for China Water Affairs (00855.HK) [1] Core Views - The company demonstrates resilient core operations with a focus on cost reduction and efficiency improvements, despite a decline in revenue and net profit [7] - Capital expenditures continue to decrease, and the company is expected to enhance its free cash flow and dividend capacity [7] Financial Performance Summary - For FY2026, total revenue is projected at HKD 10,026 million, reflecting a year-on-year decline of 13.98% [1] - The net profit attributable to shareholders is estimated at HKD 1,136 million, showing a year-on-year increase of 5.70% [1] - The latest diluted EPS is forecasted to be HKD 0.70, with a P/E ratio of 8.44 [1] Segment Performance - The urban water supply segment reported revenue of HKD 32.71 billion, down 13.1% year-on-year, with segment profit decreasing by 17.4% [7] - The environmental protection segment saw revenue growth of 8.7% year-on-year, with a segment profit increase of 29.7% [7] - The direct drinking water segment experienced a significant revenue decline of 28.3% year-on-year [7] Capital Expenditure and Dividends - Capital expenditures for FY26H1 were HKD 12.43 billion, down 31.8% year-on-year [7] - The total dividend per share remains stable at HKD 0.13, with a dividend yield of 4.8% [7] Earnings Forecast Adjustments - The forecast for net profit attributable to shareholders for FY2026-2028 has been revised down to HKD 11.36 billion, HKD 12.06 billion, and HKD 12.32 billion respectively [7] - Corresponding P/E ratios are projected at 8.4, 7.9, and 7.8 for FY2026, FY2027, and FY2028 [7]

Investment Rating - The investment rating for the company is "Buy" and is maintained [8]. Core Insights - The company reported a revenue of HKD 5.183 billion for FY2026H1, a year-on-year decrease of 12.9%. Gross profit was HKD 1.827 billion, down 20.1%, and net profit attributable to shareholders was HKD 571 million, a decline of 24.4%. The interim dividend per share remained flat at HKD 0.13 [2][6]. - The core operating business remains stable, although the installation, maintenance, and construction segments, along with property business, have seen declines, impacting overall profitability. The company has shown signs of a turning point in free cash flow, indicating potential for future dividend increases [2][9]. Business Segment Analysis - **Urban Water Supply**: Revenue decreased by 13.1% to HKD 3.27 billion, with segment profit down 17.4% to HKD 941 million. However, core water supply service revenue increased by 4.5% to HKD 1.801 billion, driven by a 5% increase in water sales. The completion of water price adjustments in eight cities is expected to further boost revenue and profit margins [9]. - **Direct Drinking Water**: Revenue fell by 28.3% to HKD 263 million, with segment profit declining 55.2% to HKD 75 million. Despite this, revenue from direct water supply operations and equipment sales remained stable [9]. - **Environmental Segment**: Benefiting from the Meifeng Wastewater Treatment Project, this segment achieved revenue of HKD 832 million, a year-on-year increase of 8.7%, with segment profit rising 29.7% to HKD 367 million [9]. - **General Contracting**: Revenue decreased by 6.1% to HKD 398 million, with segment profit down 60.2% to HKD 158 million [9]. - **Property Business**: Revenue plummeted by 93.3% to HKD 17 million, with segment profit dropping 96.4% to HKD 500,000, but the impact on overall performance is expected to be limited [9]. Financial Performance - The company experienced a 17.6% decrease in financial expenses during FY2026H1, benefiting from lower financing costs amid domestic and international interest rate cuts [9]. - The interim dividend payout ratio is 37%, with capital expenditures peaking at HKD 5.14 billion in FY2024, decreasing to HKD 3.24 billion in FY2025, leading to a positive free cash flow of HKD 150 million. For FY2026, capital expenditures are projected to be no more than HKD 2 billion, indicating a clear turning point in free cash flow and potential for increased dividends [9]. Earnings Forecast and Valuation - The company is expected to achieve net profits attributable to shareholders of HKD 1.14 billion, 1.16 billion, and 1.20 billion for FY2026-2028, with year-on-year growth rates of 6.0%, 2.2%, and 2.7% respectively. The emergence of free cash flow is viewed positively for future dividend increases, with a projected dividend payout ratio of 42.53% for FY2026-2028, corresponding to dividend yields of 5.1%, 5.2%, and 5.3% based on the stock price as of November 28, 2025 [9].

Core Viewpoint - The company is a leading player in the water supply industry in China, with a stable development in its main water supply business and a first-mover advantage in pipeline drinking water [1] Group 1: Company Overview - The company serves over 30 million people in urban water supply and approximately 12 million in pipeline drinking water as of FY2025 [1] - The revenue structure includes urban water supply (64.3%), environmental protection (13.1%), general contracting (5.7%), pipeline drinking water (5.6%), property development and investment (3.1%), and other segments (8.2%) [1] - The company has no controlling shareholder, with a diversified and balanced ownership structure, including major shareholders such as the chairman Duan Chuanliang (27.4%), Orix (27.3%), and Great Wall Life Insurance [1] Group 2: Financial Highlights - The company has passed its peak capital expenditure phase, with FY2024 capital expenditure at HKD 5.14 billion, decreasing to HKD 3.24 billion in FY2025, leading to a positive free cash flow of HKD 150 million [1] - The capital expenditure is expected to be capped at HKD 2 billion in FY2026, indicating a clear turning point for capital expenditure and potential for increasing free cash flow and dividends [1] Group 3: Industry Insights - The water supply and sewage treatment sectors are experiencing stable growth, with municipal public facility investments showing signs of recovery due to national equipment renewal policies [2] - The projected CAGR for water supply and sewage treatment from 2025 to 2027 is 0.37% and 1.2%, respectively [2] - The company’s operational capacity as of FY2025 includes water supply (730,000 tons/day), sewage (90,000 tons/day), and raw water (189,000 tons/day), with ongoing construction capacities showing limited growth [2] Group 4: Drinking Water Segment - The company has made strategic acquisitions in the pipeline drinking water sector, which are expected to stabilize profitability despite a decline in connection and construction business [3] - Forecasted net profit for FY2026-2028 is HKD 1.25 billion, HKD 1.28 billion, and HKD 1.31 billion, with year-on-year growth rates of 16.5%, 2.2%, and 2.4% respectively [3] - Assuming a dividend payout ratio of 42.53% for FY2026-2028, the corresponding dividend yields are projected to be 5.3%, 5.4%, and 5.5% [3]

Investment Rating - The report assigns a "Buy" rating to the company, indicating a positive outlook for investment [12]. Core Insights - The company is a leading player in the water supply industry, with steady growth in its core water supply business and a first-mover advantage in pipeline drinking water [4][7]. - By FY2025, the company's urban water supply business will serve over 30 million people, while its pipeline drinking water business will serve approximately 12 million [4][7]. - The company has reached a turning point in free cash flow, with expectations for increased dividends in the future [4][11]. Summary by Sections Company Overview - The company operates primarily in urban water supply and pipeline drinking water, with a diversified revenue structure [19][21]. - As of FY2025, the revenue breakdown includes urban water supply (64.3%), environmental protection (13.1%), and other segments [24]. Financial Highlights - The company’s capital expenditure peaked at HKD 51.4 billion in FY2024, decreasing to HKD 32.4 billion in FY2025, leading to a positive free cash flow of HKD 1.50 billion [8][32]. - The dividend payout ratio for FY2025 is projected to be 42.53%, with potential for future increases as free cash flow improves [32]. Water Sector Analysis - The urban water supply and sewage treatment sectors are experiencing stable growth, with a projected CAGR of 0.37% for water supply and 1.2% for sewage treatment from 2025 to 2027 [9][40]. - The company’s operational capacity as of FY2025 includes 730,000 tons/day for water supply and 90,000 tons/day for sewage treatment, with ongoing projects across various provinces [47][49]. Strategic Positioning - The company primarily operates under the Transfer-Own-Operate (TOO) model, which enhances its asset value compared to other models [51]. - The company is expected to benefit from the current round of price adjustments in the water supply sector, with recent increases in basic water prices averaging 21.3% [52].

Core Viewpoint - The China-ASEAN Construction Technology Expo showcases innovations and future cooperation in the construction sector, emphasizing smart construction, digital applications, and green low-carbon initiatives [1] Group 1: Event Overview - The expo is part of the 2025 China-ASEAN Construction Ministers' Roundtable Meeting, themed "Building the Future Together" [1] - It features seven exhibition areas, including smart construction and urban development, highlighting collaborative achievements between China and ASEAN [1] - Over 60 companies participated, with 41 from China, including several Fortune 500 and leading industry firms, and 22 from ASEAN countries [1] Group 2: Company Focus - China Gas - China Gas is the largest and earliest city gas enterprise in Guangxi, with nearly 15,000 kilometers of pipeline and over 3 million users [2] - The company aims to extend its services beyond gas supply to home living services, showcasing innovations in home comfort and safety [2] - The company signals its intention to expand into Southeast Asian markets, aligning with Guangxi's role as a gateway for cooperation with ASEAN [2]

Group 1 - The China-ASEAN Construction Ministers' Roundtable Conference was held in Guilin, Guangxi, showcasing the theme "Building the Future Together" [1] - China Gas Holdings Limited presented its innovative technologies and service models, highlighting its transformation from a traditional gas supplier to a technology-driven comprehensive energy service provider [1][2] - The company showcased its "Smart Gas City" solution, which integrates AI, IoT, and big data for efficient gas lifecycle management [2] Group 2 - China Gas has transitioned to green secondary energy, with over 100 operational energy storage projects in China, maintaining a leading market share [2] - The company is actively developing biomass energy solutions, providing clean energy options to commercial users, aiding in low-carbon transitions [2] Group 3 - The company launched modern home solutions under its brand Yipinhui, focusing on safety, comfort, and sustainability, aligning with national housing expectations [3][6] - The "Five Constants System" was introduced, ensuring stable indoor conditions and energy efficiency, outperforming traditional systems in both summer and winter [7] Group 4 - Yipinhui set up an outdoor exhibition for its pipeline drinking water technology, aiming to enhance drinking water quality for 20 million users in various cities [8] - The company signed multiple cooperation agreements during the conference, focusing on zero-carbon parks and biomass natural gas projects [9] Group 5 - China Gas has established a strong presence in Guangxi, with nearly 15,000 kilometers of pipeline and over 3 million users, laying a solid foundation for expansion into ASEAN markets [12] - The company aims to leverage its experience in Guangxi to enter emerging markets in Southeast Asia, exploring cross-border energy cooperation [14]

Core Viewpoint - After four months of consolidation, China Water (00855) is expected to enter a new market phase due to strong market conditions and its own operational improvements [1][2]. Market Conditions - The Hong Kong stock market has shown strong performance since April, with the Hang Seng Index rising over 33% in less than five months, reaching a peak of 25,918 points on August 25, the highest in nearly four years [1]. - The strong market performance is attributed to three main drivers: valuation recovery, policy benefits, and significant inflows of southbound capital, which have exceeded HKD 970 billion year-to-date [1]. - Southbound capital is particularly favoring high-dividend assets, with a notable focus on sectors like banking, energy, and utilities [1][2]. Company Developments - China Water has seen increased shareholder activity, with notable investments from Great Wall Life Insurance and TaiKang Life, as well as an increase in shares held by ORIX Corporation to 20.28% [2]. - Despite the recent market focus on technology sectors driven by AI, there is a noticeable shift towards utility sectors, with public utilities seeing a net inflow of HKD 10.23 million in recent days [2]. Financial Performance - For the fiscal year 2025, China Water's total revenue decreased by 9.4% to HKD 11.656 billion, primarily due to a decline in urban water supply service revenue [3]. - Adjusted EBITDA increased by 1.8% to HKD 5.257 billion, indicating a slight growth in real profitability [3]. - The company improved its gross margin by 0.7 percentage points to 37.8%, with profit margins in urban water supply, pipeline drinking water, and environmental sectors also showing improvements [3]. Cash Flow and Dividends - Capital expenditures decreased by HKD 1.9 billion to HKD 3.4 billion, leading to a positive free cash flow for the first time [4]. - The dividend payout ratio increased by 12 percentage points to 42%, reflecting the company's commitment to returning value to shareholders [4]. Future Outlook - China Water has 97.7 million tons per day of capacity under construction, expected to be operational by fiscal year 2026, which will enhance water sales [4]. - The acceleration of water price adjustment projects is anticipated to provide new momentum for the company's urban water supply business, with several projects already approved for price increases [5]. - Analysts predict a rapid recovery in net profit for fiscal year 2026, with estimates suggesting a growth of over 27% to HKD 1.372 billion [5]. Investment Potential - Given the positive outlook and high dividend yield, China Water is positioned to benefit from the increasing allocation of southbound capital towards high-dividend assets [6]. - Analysts maintain a "buy" rating for China Water, projecting a target price of HKD 7.8, indicating a potential upside of nearly 30% from the closing price of HKD 6.21 on August 29 [6].

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]