China Everbright Water Limited (SGX:U9E), a S$1.13B small-cap, operates in the utilities industry which has continued to cope with the rising costs and complexities of maintaining legacy systems, while less traditional challenges are emerging. Recent trends utility companies are facing include rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a relatively muted growth of 8.82% in the upcoming year , and a strong near-term growth of 18.27% over the next couple of years. This rate is larger than the growth rate of the Singapore stock market as a whole. Should your portfolio be overweight in the utilities sector at the moment? Today, I will analyse the industry outlook, and also determine whether China Everbright Water is a laggard or leader relative to its utilities sector peers. Check out our latest analysis for China Everbright Water
What’s the catalyst for China Everbright Water’s sector growth?
Aging asset performance with increased expectations on reliability, and new entrants and disruptive technology, are just some of the few key disruption in utilities. Over the past year, the industry saw growth of 8.82%, though still underperforming the wider Singapore stock market. China Everbright Water leads the pack with its impressive earnings growth of 59.10% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with China Everbright Water poised to deliver a 11.63% growth over the next couple of years compared to the industry’s 8.82%. This growth may make China Everbright Water a more expensive stock relative to its peers.
Is China Everbright Water and the sector relatively cheap?
Water utility companies are typically trading at a PE of 16.65x, relatively similar to the rest of the Singapore stock market PE of 13.5x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 12.13% compared to the market’s 7.37%, potentially illustrative of past tailwinds. On the stock-level, China Everbright Water is trading at a lower PE ratio of 11.41x, making it cheaper than the average water utilities stock. In terms of returns, China Everbright Water generated 6.98% in the past year, which is 5.15% below the utilities sector.
Next Steps:China Everbright Water’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. In addition to this, its PE is below its utilities peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of, or enter into, the stock. However, before you make a decision on the stock, I suggest you look at China Everbright Water’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has U9E’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of China Everbright Water? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!