Valuations reflect growth, but not risks
􀂄 Medium-term growth outlook is strong
Water wastage and pollution are two major problems in China. We believe the
government will allow more private companies to invest in the water sector to help
alleviate these problems. An increasing water tariff trend and the scope for
efficiency gains in projects are the main sector attractions, in our view.
􀂄 Returns risk from competition and regulatory change
We think the evolving regulatory regime reduces return predictability. There is risk
of competition from both domestic and foreign companies for projects, resulting in
lower returns.
􀂄 Tap water is the most attractive water segment, in our view
We believe the tap water segment has the most upside potential with the highest
probability of tariff increases, organic growth within a concession area, and
potential to boost returns through efficiency gains.
􀂄 Initiating on Tianjin Capital (Sell) and Guangdong Investment (Neutral)
We think investors have focused on the need for China to increase sewage
treatment as an investment case, but we believe Tianjin Capital faces significant
uncertainty in its core franchise area, Tianjin. We think the stock is unattractive at
current levels, because of its demanding valuation. We like Guangdong
Investment’s strong cash flow and robust balance sheet, but we expect its earnings
growth to be modest for the next few years. We think its share price is fairly valued
at current levels.

Contents page
Summary and investment case 3
Industry analysis 5
Industry risks 14
Valuation and comparables 16
Company pages 21
— Guangdong Investment Limited ...........................................................................22
— Investment case .............................................................................................23
— Company risks ...............................................................................................24
— Financials .......................................................................................................25
— Price target derivation ....................................................................................30
— Company background ....................................................................................32
— Tianjin Capital - H .................................................................................................36
— Investment case .............................................................................................37
— Company risks ...............................................................................................39
— Financials .......................................................................................................40
— Price target derivation ....................................................................................44
— Company background ....................................................................................45
— Bio-Treat Technology ...........................................................................................49
— Hyflux....................................................................................................................53