Business result is better than expected

The Company recorded revenues of HK$8.926 billion for the year of 2014, up by 39% yoy; registered gross profit of HK$3.496 billion with gross margin at 39.1%, roughly maintaining the same level as in 2013. In 2014, the profit attributable to its shareholders was HK$1.794 billion, having a significant year-on-year growth of 65%. It recorded earning per share of HK$0.2, with dividend per share being HK$4.8 cent. Overall, the Company's results were better than expected in the past year.

New projects grew rapidly

New projects in relation to water processing business in 2014 reached 4.65 million tons, most of which were implemented in the models of BOT and PPP. In the past year, the total scale of water projects increased up to 20.15 million tons, 21% more than at the end of 2013, including 11.71 million tons for effluent treatment projects, 928.5 thousand tons for recycled water projects and 7.46 million tons for water supply projects. It is expected that the total scale will hit 40 million tons by 2018, with new projects being 5 million tons on average year by year. For 2015, the Company set a target of 3 million tons for new projects and this figure is likely to be exceeded. So far, 54% of the projects undertaken by the Company have been up to standard of Grade One Level A, with the rest being Grade One Level B or Grade Two, which will likely be improved. In this year, a total of 5 projects involving 230 thousand tons will improve water standard, with the likelihood of water price rising in the future.

Valuation

Seeing the rapid growth of new projects, the Company's result is expected to witness a growth of over 30% every year in the coming five year. As more projects will be put into operation, the Company's gross margin will go above 40%. The declining interest has also kept bringing down the financing cost. Besides, it plans to develop business in terms of industrial effluent treatment and town/village effluent treatment, and the operation of the photovoltaic power plant is likely to drive growth. To sum up, we expect that our price per share goes up to HK$7.98, equivalent of 25 times earnings in 2015. We maintain a “Buy” rating. (Closing price as at 12 May 2015)

Financials

Click Here for PDF format...