China Water & Environment

China Water & Environment: Nomura is overall positive on China’s waste-water treatment (WWT) industry and expect rapid growth after the National Development and Reform Commission announced in July more than 20 provincial investment plans totalling Rmb23b. WWT companies are split into three types: Rural private companies with low penetration and high organic growth opportunities, (ii) municipal SOE companies with higher penetration and growth through acquisitions, (iii) industrial players in small niche market but with advanced technical know-how, enjoys high profitability and high barrier to entry. Nomura is particularly optimistic in rural private companies (although they are also highly exposed to tariff collection risks) and recommends buy on Sound Global (967 HK), Beijing Enterprises Water (371 HK) CT Environment Group (1363 HK), China Everbright Int (257 HK) and Kangda Env (6136 HK) in such order. Separately, there are three major WWT listed on SGX that are worth watching: SIIC Environment, Hankore Environment and United Environment. Hankore resembles a rural water company pre-merger, SIIC is a municipal SOE and United Env, the first membrane-based WWT in China, is an industrial player. SIIC is the most favoured (5 Buys, no Hold and Sell calls) for its strong local-government backing, management track record, as well as strong balance sheet and easy access to capital to carry out M&A. The street view on Hankore is mixed (2 Buys, 0 Hold, 1 Sell). The positive effect expected of the China Everbright (CEI) RTO is weighed against rich valuation and mediocre YTD results. United Envirotech has 1 Buy, 2 Holds as upbeat outlook in membrane-based WWT sector is offset by rich valuation.