HONG KONG, Jan. 8, 2016 /PRNewswire/ -- J.P. Morgan published a research report yesterday, expecting that Beijing Enterprises Water Group Limited (00371.HK) will report strong earnings in March 2016. It indicated that BEW's earnings has been improving in recent years with a larger proportion coming from recurring cash earnings.
J.P. Morgan points out that, BEW uses IFRIC 12 accounting standard as do other international companies operating BOT (build-operate-transfer) projects. They believe that the company will report strong earnings in March 2016 due to the capacity addition will be 4.5MM tons per day in 2015. BEW's earnings has been steadily improving in recent years with a proportion of 70% coming from recurring cash earnings. J.P. Morgan expects the proportion of construction profit which is of lower margin will continue to decline in the future. In other words, the quality of BEW's earnings will be improving.
Shares of BEW are now trading at 14x 2016E P/E (vs historic average of 19x). J.P. Morgan maintains "Overweight" rating with target price of HK$8.
In addition, BEW signed US$300 million long-term preferential loans with IFC in last December which will be used for M&A, construction and operation of sewage and tap water projects in China.
