SINGAPORE (Aug 8): RHB Research is maintaining its “buy” call on China Everbright Water with a price target estimate of 54 cents, after the environmental protection company yesterday posted a set of 2Q17 results which came in slightly ahead of the research house’s expectations.

See: China Everbright Water 1H earnings rise 41% to $44.4 mil

In a Tuesday report, analyst Juliana Cai recalls that the strong revenue growth over the quarter was largely due to increased construction activities related to China’s sponge city project – the concept of designing cities to absorb and reuse excess rainwater – as well as the river basin ecological restoration project.

“With the strong pipeline of projects underway, we think the near-term growth drivers for Everbright Water are secured. We make no change to our forecasts at the moment. Note that further additions of new projects would be positive to its share price,” says Cai.

Everbright Water has secured new projects with a total investment value of RMB4.3 billion, recaps the analyst, which have a total daily wastewater treatment capacity of 255,000 tonnes. This brings the group’s treatment capacity to 88% from 78% upon completion of the four out of seven projects which are upgrading works, after which she expects to see further tariff hikes.

Following the recent issue of Everbright Water’s RMB1 billion of five-year corporate bonds last month, Cai thinks there could be a marginal increase in finance costs for the group moving forward.

“We think net gearing should not be significantly impacted since the proceeds are meant to repay existing borrowings and replenish working capital,” concludes the analyst.

As at 11.14am, shares in China Everbright Water are trading 0.5 cent higher at 48 cents.