04-04-2018

According to the Chinese Government’s 13th five-year plan, the market value of wastewater treatment in China may reach thousand billion RMB over the next five years. While there is still a huge demand in the development of wastewater treatment in China, we see a great investment opportunity within this sector. The wastewater treatment opportunity in China’s urban region is estimated to close to 200 billion RMB over the next five years. The sector is now entering a fast-growing stage under government’s support. The PPP arrangement has become popular in the wastewater treatment sector since 2014. The arrangement emphasizes “benefit sharing, risk sharing, long-term cooperation” that connect government and private parties to work closely on the infrastructure projects. Beijing Enterprises Water Group Limited ("BEWG")(371) is a leading integrated water system solution provider in China which provides a broad range of water services and environmental protection services include operations in water treatment business, construction and technical services for the water environmental renovation. BEWG announced a lower than consensus 2017 results, the miss mainly came from weaker-than-expected revenue growth from comprehensive water environmental renovation business due to slow execution of PPP projects. The near-term growth of the BEWG is likely to be affected as the financing environment and PPP restrictions look set to remain tight in 2018, but the order backlog remains strong, and a tighter restriction may only cause a delay but not a halt to the pipeline project. Long-term growth prospects for BEWG remain intact as the Chinese government is expected to introduce more serious measures to improve the pollution problem. The underlying demand for better water quality is still solid. We believe the recent sell-off of BEWG is overdone and the valuation is attractive. We suggest investors accumulating from the dip.