Revenue growth was relatively higher

The company's reported revenue in 2015H1 was RMB475 million, strongly up by 106% yoy. Reported net profit increased by 34.4% yoy to RMB54 million. The revenue growth was significantly higher than the net profit growth, as the revenue growth mainly came from the lower-margin construction services business.

The rapid development of construction business

Revenue of construction services business in 2015H1 grew by RMB151 million, representing a sharp increase of 142.5% yoy. Revenue from water supply grew by 53.3% yoy to RMB40.7 million. Revenue from sewage treatment business rose by 24.4% yoy to RMB32 million. Construction services business delivered the strongest revenue growth, mainly due to the three additional BT projects in 2015H1.

Smooth progress of operation business

As of 2015H1, the company had 47 sewage projects that were under construction and in operation, with a total handling capacity of 866,500 tons. Compared with the same period of last year, it added 5 projects with an additional handling capacity of 189,000 tons. The utilization rate of sewage treatment plants was 63.8% and the average unit price per ton was RMB1.04. As of 2015H1, the company had 17 water supply projects, with a handling capacity of 546,000 ton. Compared with the same period of last year, the company added 14 projects, with an additional handling capacity of 365,000 tons.

Valuation

The IPO of the company was completed this year. The abundant cash on hand will be used for construction of new projects and acquisitions in future. Currently, the average lending rate of the company is 6.79%, which was relatively stable comparing with that of last year. It may increase its borrowings in future as the company may launch more new projects in the coming two years. We cut our target price to HKD5.82 and recommend a “buy” rating. (Closing price as at 6 Jan 2016)

Financials

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