Huafu Securities: New water prices will be implemented in Guangzhou starting in June. It is worth paying attention to the re-evaluation of the value of water companies.

Huafu Securities released a research report stating that recently, the Guangzhou Development and Reform Commission issued a notice regarding the reform of the water price in the central urban area of our city. The adjustment of the central urban area water price will be implemented starting from June 1, 2025, and Guangzhou will enforce the new water price. Compared to the water prices implemented in May 2012, the first, second, and third tiers of residential water consumption will be increased by 28.8%, 28.6%, and 93.2% respectively (previous values were 1.98 yuan/ton, 2.97 yuan/ton, and 3.96 yuan/ton). It is estimated that about 80% of households (first tier) will see an increase of about 12 yuan in monthly water bills, while about 10% of households (second tier) will see an increase of about 24.5 yuan. This reform is expected to accelerate the renovation and upgrading of local water supply facilities, promote water conservation and the reuse of water resources. The main points of view of Huafu Securities are as follows: Event: Recently, the Guangzhou Development and Reform Commission issued a notice regarding the reform of the water price in the central urban area of our city. The adjustment of the central urban area water price will be implemented starting from June 1, 2025. Residential water consumption in the first tier increased by nearly 30%: The areas affected by this price adjustment include Yuexiu District, Liwan District, Tianhe District, Haizhu District, Huangpu District, Baiyun District, and the University Town, among other central urban areas. The prices for residential water consumption in the first, second, and third tiers are adjusted to 2.55 yuan/cubic meter, 3.82 yuan/cubic meter, 7.65 yuan/cubic meter, and the combined water meter price is increased to 2.80 yuan/cubic meter; the price of non-residential water consumption is adjusted to 4.40 yuan/cubic meter, and the price of special water consumption is adjusted to 25 yuan/cubic meter. Compared to the water prices implemented in May 2012, the first, second, and third tiers of residential water consumption have increased by 28.8%, 28.6%, and 93.2% respectively (previous values were 1.98 yuan/ton, 2.97 yuan/ton, and 3.96 yuan/ton). It is estimated that about 80% of households (first tier) will see an increase of about 12 yuan in monthly water bills, while about 10% of households (second tier) will see an increase of about 24.5 yuan. This reform is expected to accelerate the renovation and upgrading of local water supply facilities, promote water conservation and the reuse of water resources. A new round of water price adjustments is systematically unfolding. In July 2024, the National Development and Reform Commission and five other departments issued the "Guiding Opinions on Accelerating the Development of the Water-Saving Industry," proposing to improve the water-saving market mechanism, and the income from the increased tiered water prices should mainly be used for pipeline and household meter renovation, water quality improvement, and compensation for the rising costs of water supply, alleviating the cost pressure on water companies. Since November 2023, Shanghai, Guangzhou, Changsha, Nanjing, and other cities have already implemented or planned to adjust water prices, and some third-tier cities, such as Huangshan City, Tongling City, and Meizhou City have successfully implemented water price adjustments. To date, the data on some cities' water price adjustment plans shows that the average increase in the basic water price of the first tier of residential water consumption is more than 20%. In March 2025, the Shenzhen Development and Reform Commission issued an announcement to adjust water prices, proposing to adjust the comprehensive water price from 3.45 yuan/ton to 3.9 yuan/cubic meter (including tax), an increase of 13.05%. The new round of water price increases is expected to continue to advance, and the adjustment of water prices is conducive to transmitting cost pressures to end-users for water companies, ensuring the reasonable profits of water supply enterprises while promoting the healthy and sustainable development of the water industry. Investment recommendation Since 2023, water prices in many areas have been adjusted, and the profit capabilities of relevant water supply companies have been further guaranteed, driving the healthy and orderly development of the industry. The reevaluation of water utility companies' value is worth paying attention to, and we recommend focusing on Grandblue Environment (600323.SZ), Chengdu Xingrong Environment (000598.SZ), Guangdong Shunkong Development (003039.SZ), Jiangxi Hongcheng Environment (600461.SH), and Jiangsu Jiangnan Water (601199.SH). Risk alert Policies falling short of expectations; local financial pressures; the extension of accounts receivable repayment cycles.