Beijing Enterprises Water’s (00371 HK, "BEWG", or the "Company") 1H2021 revenue increased 9.8% YoY to HK$13.7 billion. Shareholders’ net profit increased 6.7% YoY to HK$2.4 billion. Results missed expectation. Gross margin decreased 1.5 ppts YoY to 36.9%. Administrative expense ratio was up 1.1 ppts YoY to 8.9%. Finance costs ratio was down 0.6 ppts YoY to 9.9%. During 1H2021, net increase in daily design capacity was 1,306,595 tons, up 57.9% YoY. As at 30th June, 2021, total daily designed capacity was at 43,431,331 tons.
We expect sewage and reclaimed water treatment services revenue to increase at a CAGR of 15.6% in 2020-2023, and water distribution services revenue to increase at a CAGR of 12.0% in 2020-2023. We expect construction services revenue to decrease at a CAGR of -12.8% in 2020-2023. We expect technical services and machinery sales revenue to increase at a CAGR of 15% in 2020-2023. Total revenue should increase at a CAGR of 2.3% in 2020-2023.
Our EPS estimates are HK$0.447, HK$0.475 and HK$0.530 for 2021/ 2022/ 2023, respectively. The Company’s asset-light strategy should help to improve operating cash flow and raise its valuation. Maintain the TP at HK$4.00, representing 10.1x/ 10.0x/ 9.4x 2021/ 2022/ 2023 EV/EBITDA.Reiterate "Buy".