Edison Investment Research Limited: Edison issues outlook on China Water Affairs Group (855)

London, UK, 16 April 2019

Edison issues outlook on China Water Affairs Group (855)

We believe China Water Affairs Group's (CWA) strong financial position (net debt/equity FY18 c 70%) and impressive track record of generating returns for shareholders should enable it to exploit the favourable market conditions and allow for a continuation of its strong growth profile. Following the recent acquisition of 29.5% of Kangda International, CWA's market valuation appears undemanding compared to its peers despite its track record of delivering attractive returns for its shareholders.

Applying peer group average multiples would indicate a valuation of c HK$11.4 per share (up HK$0.9 per share since we last published in December 2018), for CWA, c HK$3 per share above the current share price. At HK$8.2 per share, CWA trades on a PEG ratio of only 0.6x versus 1.6x for its peers. Applying an undemanding PEG ratio of 1.0x would indicate a valuation of HK$13.0 per share. Our DCF points to a valuation of HK$11.9 per share.

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