China Water Affairs Group’s (CWA’s) reported 59% half-on-half (h-o-h) increase in revenue and 62% operating profit improvement were flattered by HK$1,336m non-cash revenues and a HK$248m non-cash operating profit contribution from a property revaluation. Excluding non-cash effects, h-o-h operating profit increased by 30%. City Water Supply (CWS), CWA’s most significant business unit, grew revenue at an underlying rate of 25% h-o-h (70% reported; see Exhibit 3) and operating profit surprised on the upside. We increase our estimates to take account of the improved operating performance and work through various non-cash items in FY17e. Our 1.3% increase in FY18e EBITDA, together with improved cash generation, has the effect of increasing our fair value per share by 9.6% to HK$7.12 from HK$6.52.
