Is China Water Affairs Group Limited (HKG:855) Thriving Or Barely Surviving?
China Water Affairs Group Limited (HKG:855), a HK$14.46b small-cap, operates in the utilities industry which has continued to cope with the rising costs and complexities of maintaining legacy systems, while less traditional challenges are emerging. Utilities analysts are forecasting for the entire industry, a strong double-digit growth of 13.9% in the upcoming year , and an optimistic near-term growth of 15.8% over the next couple of years. However, this rate came in below the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether China Water Affairs Group is lagging or leading its competitors in the industry.
View our latest analysis for China Water Affairs Group
What’s the catalyst for China Water Affairs Group’s sector growth?
Going forward, utility companies face the threat of new entrants and disruptive technologies, growth in renewable generation, and aging assets, just to name a few. In the past year, the industry delivered growth in the teens, though still underperforming the wider Hong Kong stock market. China Water Affairs Group leads the pack with its impressive earnings growth of 33.6% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with China Water Affairs Group poised to deliver a 18.5% growth over the next couple of years compared to the industry’s 13.9%. This growth may make China Water Affairs Group a more expensive stock relative to its peers.
Is China Water Affairs Group and the sector relatively cheap?
The water utilities industry is trading at a PE ratio of 8.78x, in-line with the Hong Kong stock market PE of 12.06x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.4% on equities compared to the market’s 9.7%. On the stock-level, China Water Affairs Group is trading at a PE ratio of 12.38x, which is relatively in-line with the average utilities stock. In terms of returns, China Water Affairs Group generated 15.8% in the past year, which is 6.4% over the utilities sector.
Next Steps:
China Water Affairs Group’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. So if you like its growth prospects, you’ll be paying a fair value for the company. If the stock has been on your watchlist for a while, now may be the time to enter. However, before you make a decision on the stock, I suggest you look at China Water Affairs Group’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has 855’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of China Water Affairs Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
