Continuing growth
China Water Affairs Group’s (CWA’s) reported 59% half-on-half (h-o-h) increase in revenue and 62% operating profit improvement were flattered by HK$1,336m non-cash revenues and a HK$248m non-cash operating profit contribution from a property revaluation. Excluding non-cash effects, h-o-h operating profit increased by 30%. City Water Supply (CWS), CWA’s most significant business unit, grew revenue at an underlying rate of 25% h-o-h (70% reported; see Exhibit 3) and operating profit surprised on the upside. We increase our estimates to take account of the improved operating performance and work through various non-cash items in FY17e. Our 1.3% increase in FY18e EBITDA, together with improved cash generation, has the effect of increasing our fair value per share by 9.6% to HK$7.12 from HK$6.52.China Water Affairs Group Ltd, formerly China Silver Dragon Group Ltd, is an investment holding company principally engaged in city water supply operation and construction. The Company operates its business through three segments. The City Water Supply Operation and Construction segment engages in the provision of water supply operation and construction services. The Environmental Protection segment engages in the provision of sewage treatment and drainage operation and construction services, solid waste and hazardous waste business, environmental sanitation and water environment management. The Property Development and Investment segment engages in the development of properties for sale and investment in properties for long term rental.
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