Water Sector. China / Hong Kong Industry Focus. More PPP projects. DBS Group Research. Equity 12 August 2016 HSI: 22,581

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1 China / Hong Kong Industry Focus Refer to important disclosures at the end of this report DBS Group Research. Equity 12 August 2016 More PPP projects Expect 11-30% earnings growth for 1HFY16 Investment in water PPP projects increased 13-48% during 2Q2016 SOE in better position to grab PPP projects Top picks: China Everbright International (257 HK) and CT Environment (1363 HK) Expect strong growth in 1HFY16. With the exception of Tianjin Capital, which we estimate a growth at low-teen, we expect most water companies to report strong earnings growth of >20% for 1HFY16. This is underpinned by the large amount of order backlog (as a result of good deal flow) or M&A. Deal flow momentum remained strong in 1H16 for China Everbright International (257 HK), Beijing Enterprises Water (371 HK) and CT Environment (1363 HK). Although Kangda s deal flow was sluggish in 1H16, the latest PPP project won in August will boost its project portfolio and order backlog. More investment in the water market through PPP projects. According to data from Ministry of Finance, there were 740, 367, 277, 100 and 35 PPP projects for waste water treatment, water supply, municipal waste treatment, drainage and sponge cities during 1H16 respectively in China. Investment of these projects amount to Rmb183.8bn, Rmb126.6bn, Rmb57.6bn, Rmb24.3bn and Rmb68bn respectively. Growth of these investment varied from 13% to 48% during 2Q2016. Participation from private enterprises in these PPP projects is relatively low due to various reasons, such as financing difficulties, weak legislative system, etc. Despite these, we believe investment in PPP water projects will continue to grow and SOE backed water companies are in a better position to tap into the market. This is echoed by the fact that private enterprises and SOE account for 36% and 55% of 119 players taking part in PPP program. Top picks. We favour those stocks with more solid balance sheet, stronger order backlog and in a less competitive segment. Thus, we like China Everbright International and CT Environment. We also believe the spin-off of the greentech operation will be a catalyst for China Everbright International. HSI: 22,581 ANALYST Patricia YEUNG patricia_yeung@hk.dbsvickers.com Tony WU CFA tony_wu@hk.dbsvickers.com Recommendation & valuation Company Price Mkt Target Upside/ Recom 16F Cap Price (downside) PE Local$ US$m Local$ % x HK/China Stocks Beijing Ents. Water (371 HK) HKD , Buy 14.2 BJ Originwater 'A' ( CH) CNY , Buy 28.8 China Everbright Intl (257 HK) HKD , Buy 15.6 CT Environmental (1363 HK) HKD , Buy 19.1 Kangda Int'l (6136 HK) HKD Hold 7.1 Tianjin Cap 'H' (1065 HK) HKD , Hold 11.9 Tianjin Cap 'A' ( CH) CNY , (16.2) Sell 27.6 Source: Thomson Reuters, DBS Vickers sa- JY

2 1HFY16 results preview DBS 1HFY16 estimates Compa ny Crnc y Sa le s YoY growth Earnings YoY growth Comme nts Beijing Enterprises Water (371 HK, BUY) China Everbright Int'l (257 HK, BUY) CT Env Group (1363 HK, BUY) Kangda (6136 HK, HOLD) Tianjin Capital (1065 HK, HOLD) HK$m 7, % 1, % HK$m 5, % 1, % RMBm % % RMBm % % RMBm % % Robust revenue growth is expected from a surge in construction revenue from comprehensive renovation services (120%) and strong growth in sewage treatment services (24%) (due to higher operating capacity). We also expect BEW to do well in adding new daily capacity with addition of at least 2m tons which should bring the total portfolio to 26m tons per day. In addition, order backlog for comprehensive renovation services is expected to be high at >Rmb6bn. Strong revenue growth is expected to be driven by WTE and greentech divisions with robust growth from both construction and operating revenue. However, given that HK$92m of gain on sales of listed securities recognized in 1HFY15, net profit growth is expected to be lower at c.16% in 1HFY16. Stripping out this impact, growth would have been higher at >20%. Project win amounted to >Rmb10bn YTD, already higher than Rmb9.8bn from FY15. This should bode well for future growth. Although the macro condition did not show any recovery in 1H16, CTEG's customer turnover rate in its industrial parks showed some improvement from We expect topline to be driven by 1) waste water treatment services (due to improvement in utilization in projects, such as Shunde, Zhongshan Longmen Xilin), 2) construction revenue from WTE project in Longmen Industry Base, 3) sludge and solid waste treatment (due to higher utilization in Qingyuan Lvyou) and 4) hazardous waste, particularly from Guangzhou Lvyou. Average capacities under construction declined from 415k tons during 1H15 to 360k tons during 1H16, and the project acquisition was sluggish during 1H16 (added 170k tons). We expect construction revenue to decline c.13% in 1H16. With 8% growth in operating capacity and tariff hike, we expect the operating revenue to grow 15%. Net profit growth is underpinned by higher operating services revenue and improvement in overall GPM. Looking ahead, the first PPP project was secured in August and we estimate the total capacity to range from m tons, which should boost construction revenue in 2H16 and FY17. Following some upgrade work done in FY15, we expect stable growth in turnover, underpinned by single digit growth in treatment volume and mild tariff hike. Stronger bottomline growth of c.12% should be underpinned by savings in interest expenses. Source: DBS Vickers Page 2

3 Peers valuation 6-mth FY15-17 Mkt av g daily PE PE EPS Yield Yield P/Bk P/Bk ROE ROE Currency Price Cap value Fiscal 16F 17F CAGR 16F 17F 16F 17F 16F 17F Company Name Code Local$ US$m US$m Yr x x % % % x x % % Hong Kong Beijing Ents. Water* 371 HK HKD , Dec China Everbright Intl.* 257 HK HKD , Dec CT Environmental Group* 1363 HK HKD , Dec Guangdong Investment 270 HK HKD , Dec Kangda Int'l* 6136 HK HKD Dec NWS Holdings 659 HK HKD , J un (1.6) Sound Global 967 HK HKD Dec China Water Affairs# 855 HK HKD Mar Tianjin Cap 'H'* 1065 HK HKD , Dec Average Singapore China Everbright Water* CEWL SP SGD , Dec Hyflux HYF SP SGD Dec n.a. n.a. n.a (1.4) 3.3 Sembcorp Industries SCI SP SGD , Dec (0.5) SIIC Environment Hdg.* SIIC SP SGD 0.6 1, Dec Average China Beijing Capital 'A' CH CNY , Dec Beijing Originwater 'A'* CH CNY , Dec Chengdu Xingrong 'A' CH CNY , Dec Chongqing Water 'A' CH CNY , Dec GD Golden Dragon 'A' CH CNY , Dec 29.3 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Heilongjiang Interchina 'A' CH CNY Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. J iangxi Hongcheng 'A' CH CNY Dec Tianjin Cap. 'A'* CH CNY , Dec Average # FY16: FY17; FY17: FY18 Source: Thomson Reuters, *DBS Vickers Page 3

4 Beijing Ent Water (371 HK EQUITY, HK$5.06, BUY, Target Price 12-mth HK$ 5.90) Forecast & Valuation General Data FY Dec (HK$ m) 2014A 2015A 2016F 2017F At A Glance Turnover 8,926 13,503 17,651 20,547 Issued Capital (m shrs) 8,705 EBITDA 3,875 4,606 5,791 7,007 Pre-tax Profit 2,667 3,546 4,385 5,285 Mkt. Cap (HK$m/US$m) 44,049 / 5,679 Net Profit 1,794 2,455 3,098 3,791 Major Shareholders Net Pft (Pre Ex.) 1,794 2,202 3,098 3,791 Beijing Enterprises (%) 44.0 EPS (HK$) EPS (HK$) Newton Finance Holdings Limited (%) 6.5 EPS Gth (%) Wang Taoguang (%) 5.0 Diluted EPS (HK$) Free Float (%) 44.5 DPS (HK$) BV Per Share (HK$) m Avg. Daily Val. (US$m) 9.6 PE (X) P/Cash Flow (X) nm nm nm P/Free CF (X) nm nm nm nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Nil Nil Consensus EPS (HK$): Other Broker Recs: B: 23 S: 0 H: 1 Income Statement (HK$ m) Balance Sheet (HK$ m) Turnover 8,926 13,503 17,651 20,547 Net Fixed Assets 1,299 1,380 1,410 1,439 Cost of Goods Sold (5,441) (8,784) (11,391) (12,933) Invts in Assocs & JVs 3,109 4,466 4,676 4,926 Gross Profit 3,485 4,719 6,260 7,614 Other LT Assets 32,155 40,493 56,954 72,969 Other Opg (Exp)/Inc (95) (490) (873) (1,055) Cash & ST Invts 6,091 6,374 5,736 5,163 Operating Profit 3,391 4,229 5,387 6,559 Inventory Other Non Opg (Exp)/Inc Debtors 8,546 11,017 11,737 13,573 Associates & JV Inc Other Current Assets ,009 Net Interest (Exp)/Inc (1,002) (1,112) (1,212) (1,525) Total Assets 51,641 64,492 81,509 99,230 Dividend Income Exceptional Gain/(Loss) ST Debt 3,945 6,678 7,428 7,057 Pre-tax Profit 2,667 3,546 4,385 5,285 Other Current Liab 7,474 11,095 13,091 14,527 Tax (594) (778) (965) (1,163) LT Debt 19,546 24,370 35,492 48,938 Minority Interest (279) (312) (322) (331) Other LT Liabilities 1,588 2,059 2,159 2,259 Preference Dividend Shareholder s Equity 15,784 16,184 18,910 21,689 Net Profit 1,794 2,455 3,098 3,791 Minority Interests 3,304 4,107 4,428 4,760 Net profit before Except. 1,794 2,202 3,098 3,791 Total Cap. & Liab. 51,641 64,492 81,509 99,230 EBITDA 3,875 4,606 5,791 7,007 Sales Gth (%) Non-Cash Wkg. Cap 1, (359) 206 EBITDA Gth (%) Net Cash/(Debt) (17,400) (24,674) (37,184) (50,832) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions Pre-Tax Profit 2,667 3,546 4,385 5,285 Revenues (HK$ m) Dep. & Amort Sewage treatment & construction 7,833 11,846 15,505 17,854 Tax Paid (277) (277) (965) (1,163) Water supply ,130 Assoc. & JV Inc/(loss) (278) (175) (209) (251) Sewage technical ,047 1,362 (Pft)/ Loss on disposal of FAs (177) Others Chg in Wkg.Cap. (2,732) (6,309) (14,610) (15,870) Total 8,926 13,503 17,651 20,547 Other Operating CF 855 1,913 1,337 1,650 Operating profit (HK$ m) Net Operating CF 264 (1,100) (9,992) (10,277) Sewage treatment & construction 3,034 3,823 4,740 5,480 Capital Exp.(net) (691) (500) (100) (100) Water supply Other Invts.(net) Sewage technical Invts in Assoc. & JV Others Div from Assoc & JV Total 3,513 4,571 5,740 6,765 Other Investing CF (1,213) (770) (834) (734) Operating profit Margins (%) Net Investing CF (1,734) (1,100) (934) (834) Sewage treatment & construction Div Paid (346) (346) (372) (1,013) Water supply Chg in Gross Debt 3,344 7,557 11,873 13,075 Sewage technical Capital Issues Others Other Financing CF (848) (4,627) (1,212) (1,525) Total Net Financing CF 2,150 2,585 10,289 10,537 Key Assumptions Currency Adjustments (102) (102) 0 0 Annual treated sewage (m tons) 2, , , ,342.4 Chg in Cash (637) (574) Average tariff (HK$/ton) Growth in annual treated sewage volume (%) Source: Company, DBS Vickers Page 4

5 China Everbright Intl (257 HK EQUITY, HK$8.69, BUY, Target Price 12-mth HK$ 10.20) Forecast & Valuation General Data FY Dec (HK$ m) 2014A 2015A 2016F 2017F At A Glance Turnover 6,355 8,535 10,459 12,998 Issued Capital (m shrs) 4,483 EBITDA 2,733 3,702 4,373 5,438 Pre-tax Profit 2,299 3,119 3,685 4,599 Mkt. Cap (HK$m/US$m) 38,955 / 5,022 Net Profit 1,703 2,085 2,494 3,133 Major Shareholders Net Pft (Pre Ex.) 1,703 2,085 2,494 3,133 China Everbright Hldgs (%) 41.4 EPS (HK$) RRJ Capital Master Fund II, L.P. (%) 7.9 Free Float (%) 50.8 EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) m Avg. Daily Val. (US$m) 7.8 BV Per Share (HK$) PE (X) P/Cash Flow (X) nm nm nm nm P/Free CF (X) nm nm nm nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Nil Nil Consensus EPS (HK$): Other Broker Recs: B: 18 S: 1 H: 5 Income Statement (HK$ m) Balance Sheet (HK$ m) Turnover 6,355 8,535 10,459 12,998 Net Fixed Assets 1,720 2,667 2,863 2,994 Cost of Goods Sold (3,387) (4,626) (5,754) (7,099) Invts in Assocs & JVs Gross Profit 2,969 3,909 4,705 5,900 Other LT Assets 20,712 26,019 33,936 43,079 Other Opg (Exp)/Inc (351) (384) (522) (669) Cash & ST Invts 4,094 5,954 3,661 3,250 Operating Profit 2,618 3,525 4,183 5,230 Inventory Other Non Opg (Exp)/Inc Debtors 3,220 4,612 5,443 6,040 Associates & JV Inc (1) (6) (7) (6) Other Current Assets 1, Net Interest (Exp)/Inc (318) (400) (491) (625) Total Assets 31,200 40,623 46,867 56,448 Dividend Income Exceptional Gain/(Loss) ST Debt 2,611 3,410 3,460 3,494 Pre-tax Profit 2,299 3,119 3,685 4,599 Other Current Liab 2,386 2,957 3,597 4,442 Tax (534) (783) (921) (1,150) LT Debt 6,525 12,411 15,601 21,953 Minority Interest (62) (251) (270) (316) Other LT Liabilities 1,834 2,425 2,425 2,425 Preference Dividend Shareholder s Equity 16,263 17,196 19,291 21,324 Net Profit 1,703 2,085 2,494 3,133 Minority Interests 1,580 2,224 2,494 2,811 Net profit before Except. 1,703 2,085 2,494 3,133 Total Cap. & Liab. 31,200 40,623 46,867 56,448 EBITDA 2,733 3,702 4,373 5,438 Sales Gth (%) Non-Cash Wkg. Cap 2,007 2,577 2,369 2,249 EBITDA Gth (%) Net Cash/(Debt) (5,042) (9,867) (15,400) (22,198) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (HK$ m) Segmental Breakdown (HK$ m) / Key Assumptions Pre-Tax Profit 2,299 3,119 3,685 4,599 Revenues (HK$ m) Dep. & Amort Environmental Energy 4,202 5,400 6,603 7,849 Tax Paid (173) (217) (921) (1,150) Environmental Water 1,051 1,815 2,492 3,363 Assoc. & JV Inc/(loss) Greentech 1,094 1,178 1,357 1,779 (Pft)/ Loss on disposal of FAs Others Chg in Wkg.Cap. (2,676) (4,839) (7,801) (9,116) Total 6,355 8,535 10,459 12,998 Other Operating CF Segmental profit (HK$ m) Net Operating CF (123) (1,538) (4,342) (4,823) Environmental Energy 2,033 2,608 2,648 3,300 Capital Exp.(net) (1,086) (1,082) (300) (250) Environmental Water ,243 Other Invts.(net) Greentech Invts in Assoc. & JV (28) (186) 0 0 Others N/A N/A 0 0 Div from Assoc & JV Total 2,987 3,868 4,151 5,309 Other Investing CF 675 (1,408) 0 0 Segmental profit Margins (%) Net Investing CF (439) (2,676) (300) (250) Environmental Energy Div Paid (448) (560) (399) (1,100) Environmental Water Chg in Gross Debt 1,187 6,793 3,240 6,387 Greentech Capital Issues Others Other Financing CF (456) (29) (491) (625) Total Net Financing CF 283 6,204 2,349 4,662 Key Assumptions Currency Adjustments (53) (130) 0 0 Volume of treated sewage (m tons) , ,285.1 Chg in Cash (332) 1,859 (2,293) (411) Volume of waste processed ('000 tons) Amount of uploaded electricity (m 1, , , ,083.7 kwh) Source: Company, DBS Vickers Page 5

6 CT Environmental Group (1363 HK Equity, HK$2.39, BUY, Target Price 12-mth HK$ 2.75) Forecast & Valuation General Data FY Dec (RMB m) 2014A 2015A 2016F 2017F Turnover 818 1,435 1,812 1,955 EBITDA ,337 Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (RMB) EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) BV Per Share (HK$) PE (X) P/Cash Flow (X) P/Free CF (X) nm nm nm nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Nil Nil Consensus EPS (RMB): Other Broker Recs: B: 14 S: 0 H: 0 Income Statement (RMB m) Balance Sheet (RMB m) At A Glance Issued Capital (m shrs) 6,317 Mkt. Cap (HK$m/US$m) 15,112 / 1,948 Major Shareholders Tsui Cham To (%) 54.3 GIC Private Limited (%) 7.0 Free Float (%) m Avg. Daily Val. (US$m) 1.6 Turnover 818 1,435 1,812 1,955 Net Fixed Assets 1,361 2,445 3,808 4,991 Cost of Goods Sold (358) (625) (905) (882) Invts in Assocs & JVs Gross Profit ,074 Other LT Assets 851 1,807 1,807 1,807 Other Opg (Exp)/Inc (47) (71) (58) (54) Cash & ST Invts Operating Profit ,019 Inventory Other Non Opg (Exp)/Inc Debtors Associates & JV Inc Other Current Assets Net Interest (Exp)/Inc (42) (70) (90) (110) Total Assets 2,852 5,505 7,008 8,124 Dividend Income Exceptional Gain/(Loss) ST Debt Pre-tax Profit Other Current Liab Tax (35) (69) (76) (105) LT Debt 743 1,367 1,968 2,197 Minority Interest (3) (2) (7) (7) Other LT Liabilities Preference Dividend Shareholder s Equity 1,471 2,883 3,506 4,159 Net Profit Minority Interests Net profit before Except Total Cap. & Liab. 2,852 5,505 7,008 8,124 EBITDA ,337 Sales Gth (%) Non-Cash Wkg. Cap EBITDA Gth (%) Net Cash/(Debt) (925) (1,627) (2,367) (2,830) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions Pre-Tax Profit Revenues (RMB m) Dep. & Amort Water supply Tax Paid (26) (32) (7) (105) Sewage treatment - BOO Assoc. & JV Inc/(loss) (3) (2) (1) (2) BOT services (Pft)/ Loss on disposal of FAs Others ,094 Chg in Wkg.Cap. 32 (346) (75) 61 Total 818 1,435 1,812 1,955 Other Operating CF (10) (18) Segmental Profit (RMB m) Net Operating CF ,292 Water supply Capital Exp.(net) (982) (1,197) (1,500) (1,500) Sewage treatment - BOO Other Invts.(net) BOT services Invts in Assoc. & JV Others Div from Assoc & JV Total ,292 Other Investing CF Segmental Profit Margins Net Investing CF (770) (978) (1,500) (1,500) Water supply Div Paid (33) (41) (54) (145) Sewage treatment - BOO Chg in Gross Debt BOT services Capital Issues Others Other Financing CF (440) (62) (90) (110) Total Net Financing CF Key Assumptions Currency Adjustments 0 (1) 0 0 Volume of industrial waste water treated (m tons) Chg in Cash (194) 266 (38) (34) Volume of sludge treated (m tons) Source: Company, DBS Vickers Page 6

7 Kangda International (6136 HK Equity, HK$1.63, HOLD, Target Price 12-mth HK$ 1.65) Forecast & Valuation General Data FY Dec (RMB m) 2014A 2015A 2016F 2017F At A Glance Turnover 1,813 1,836 1,976 2,136 Issued Capital (m shrs) 2,068 EBITDA Pre-tax Profit Mkt. Cap (HK$m/US$m) 3,373 / 435 Net Profit Major Shareholders Net Pft (Pre Ex.) Zhao Juanxian (%) 55.1 EPS (RMB) Baring Private Equity Asia GP V Limited (%) 16.6 Free Float (%) 28.3 EPS (HK$) EPS Gth (%) Diluted EPS (HK$) DPS (HK$) m Avg. Daily Val. (US$m) 0.2 BV Per Share (HK$) PE (X) P/Cash Flow (X) nm nm nm nm P/Free CF (X) nm nm nm nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Nil Nil Consensus EPS (RMB): Other Broker Recs: B: 5 S: 0 H: 3 Income Statement (RMB m) Balance Sheet (RMB m) Turnover 1,813 1,836 1,976 2,136 Net Fixed Assets Cost of Goods Sold (1,088) (1,001) (1,008) (1,067) Invts in Assocs & JVs Gross Profit ,069 Other LT Assets 4,081 5,089 6,127 7,144 Other Opg (Exp)/Inc (140) (167) (153) (159) Cash & ST Invts 747 1, Operating Profit Inventory Other Non Opg (Exp)/Inc Debtors 1,716 2,177 2,535 2,808 Associates & JV Inc Other Current Assets Net Interest (Exp)/Inc (209) (230) (284) (280) Total Assets 7,611 9,466 10,288 11,719 Dividend Income Exceptional Gain/(Loss) ST Debt 1,746 1,579 1,609 1,679 Pre-tax Profit Other Current Liab ,058 1,142 Tax (85) (109) (121) (143) LT Debt 1,814 3,200 3,503 4,286 Minority Interest (2) (10) (11) (13) Other LT Liabilities Preference Dividend Shareholder s Equity 2,843 3,200 3,605 4,086 Net Profit Minority Interests Net profit before Except Total Cap. & Liab. 7,611 9,466 10,288 11,719 EBITDA Sales Gth (%) Non-Cash Wkg. Cap 1,785 1,956 1,994 2,210 EBITDA Gth (%) Net Cash/(Debt) (2,812) (3,487) (4,420) (5,431) Opg Profit Gth (%) Effective Tax Rate (%) Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions Pre-Tax Profit Revenues (RMB m) Dep. & Amort Construction services 1, Tax Paid (17) (26) (121) (143) Operating services Assoc. & JV Inc/(loss) (6) (5) (6) (7) Financial income (Pft)/ Loss on disposal of FAs Total 1,813 1,836 1,976 2,136 Chg in Wkg.Cap. (1,191) (752) (1,076) (1,233) Key Assumptions Other Operating CF Volume of treated waste Net Operating CF (634) (30) (373) (456) water (m tons) Capital Exp.(net) (329) (329) (275) (275) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF (433) Net Investing CF (755) (327) (275) (275) Div Paid Chg in Gross Debt Capital Issues 1, Other Financing CF (173) 650 (284) (280) Net Financing CF 1, Currency Adjustments Chg in Cash (600) (158) Source: Company, DBS Vickers Page 7

8 Tianjin Cap. Environ. (1065 HK EQUITY, HK$3.89, HOLD,Target Price 12-mth HK$ 4.30) Tianjin Cap. Environ. ( CH Equity, RMB7.76, SELL,Target Price 12-mth RMB 6.50) Forecast & Valuation General Data FY Dec (RMB m) 2014A 2015A 2016F 2017F Issued Capital - H shares (m shs) 340 Turnover 1,655 1,720 1,717 1,848 - Non H shrs (m shs) 1,087 EBITDA ,026 1,088 H shs as a % of Total 24 Pre-tax Profit Total Mkt. Cap (HK$m/US$m) 11,183 / 1,442 Net Profit Net Pft (Pre Ex.) Major Shareholders EPS (RMB) Tianjin Municipal (%) 50.1 EPS (HK$) Major H Shareholders (%) EPS Gth (%) BlackRock, Inc. (%) 6.0 Diluted EPS (HK$) UBS AG (%) 5.9 DPS (HK$) H Shares-Free Float (%) 88.1 BV Per Share (HK$) m Avg. Daily Val. (US$m) 0.8 PE (X) P/Cash Flow (X) P/Free CF (X) nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Nil Nil Consensus EPS (RMB): Other Broker Recs: B: 0 S: 0 H: 3 Income Statement (RMB m) Balance Sheet (RMB m) Turnover 1,655 1,720 1,717 1,848 Net Fixed Assets ,021 1,309 Cost of Goods Sold (669) (795) (832) (906) Invts in Assocs & JVs Gross Profit Other LT Assets 6,748 6,676 6,403 6,130 Other Opg (Exp)/Inc (364) (247) (226) (235) Cash & ST Invts 815 1,329 1,427 1,281 Operating Profit Inventory Other Non Opg (Exp)/Inc Debtors 2,675 1, ,154 Associates & JV Inc (1) (5) (4) (4) Other Current Assets Net Interest (Exp)/Inc (188) (183) (97) (84) Total Assets 10,860 10,049 10,039 10,086 Dividend Income Exceptional Gain/(Loss) ST Debt 359 1, Pre-tax Profit Other Current Liab 1,597 1,585 1,582 1,334 Tax (116) (146) (139) (155) LT Debt 3,224 1,543 1,343 1,343 Minority Interest (10) (14) (17) (20) Other LT Liabilities 1,342 1,296 1,296 1,296 Preference Dividend Shareholder s Equity 4,171 4,401 4,675 5,050 Net Profit Minority Interests Net profit before Except Total Cap. & Liab. 10,860 10,049 10,039 10,086 EBITDA ,026 1,088 Sales Gth (%) (0.2) 7.6 Non-Cash Wkg. Cap 1,160 (35) (416) 13 EBITDA Gth (%) Net Cash/(Debt) (2,767) (1,222) (824) (870) Opg Profit Gth (%) (2.9) 7.3 Effective Tax Rate (%) Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions Pre-Tax Profit Revenues (RMB m) Dep. & Amort Sewage water processing 1,279 1,292 1,267 1,376 Tax Paid (95) (98) (7) (155) Tolls Assoc. & JV Inc/(loss) Tap water processing (Pft)/ Loss on disposal of FAs Others Chg in Wkg.Cap. (268) 1, (429) Total 1,655 1,720 1,717 1,848 Other Operating CF Segmental profit (RMB m) Net Operating CF 609 2,311 1, Sewage water processing Capital Exp.(net) (632) (241) (650) (400) Tolls Other Invts.(net) Tap water processing Invts in Assoc. & JV Others Div from Assoc & JV Total Other Investing CF 303 (252) 0 0 Segmental profit Margins (%) Net Investing CF (329) (493) (650) (400) Sewage water processing Div Paid (91) (91) (126) (69) Tolls Chg in Gross Debt (175) (175) (300) (100) Tap water processing Capital Issues Others Other Financing CF (194) (1,038) (97) (84) Total Net Financing CF (460) (1,304) (524) (253) Key Assumptions Currency Adjustments Total sewage volume (m cub m) , , ,182.3 Chg in Cash (180) (146) Growth in sewage volume - Tianjin (%) Growth in sewage volume - outside Tianjin (%) (0.2) Source: Company, DBS Vickers Growth in sewage volume - entrusted (%) Page 8

9 DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers (Hong Kong) Limited ( DBSVHK ) This report is solely intended for the clients of DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ) and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBSVS and DBSVHK, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group )) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making. ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 12 August 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended/mentioned in this report as of 11 Aug Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Hyflux Limited (HYF SP) as of 31 Jul DBS Bank Ltd., DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Hyflux Limited (HYF SP) in the past 12 months, as of 31 Jul DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. Page 9

10 RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia Hong Kong Indonesia Malaysia This report is being distributed in Australia by DBS Bank Ltd. ( DBS ) or DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ) or DBS Vickers (Hong Kong) Limited ( DBSVHK ), which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 ( CA ) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for wholesale investors within the meaning of the CA. This report is being distributed in Hong Kong by DBSVHK which is licensed and regulated by the Hong Kong Securities and Futures Commission This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Wong Ming Tek, Executive Director, ADBSR Singapore Thailand United Kingdom Dubai United States Other jurisdictions This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No E) or DBSVS (Company Regn No G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at for matters arising from, or in connection with the report. This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients. This research report is being distributed in The Dubai International Financial Centre ( DIFC ) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box , 3 rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it. This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18 th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) , Fax: (852) Page 10