Citi Research has issued a report assuming a dividend payout ratio of 70%, pegging BJ ENT WATER's (00371) projected dividend yield for 2026 at 5.8%. The firm believes the dividend visibility for the water utility operator has diminished, prompting a downgrade from 'Buy' to 'Neutral', while expressing a preference for companies like China Everbright Environment, which it sees as having cash flow growth that can support increased dividends.

Citi noted that BJ ENT WATER's share price fell 17% on the 26th, following a 24.6% year-on-year decline in interim dividends to HK$5.54 cents per share, with the payout ratio dropping 5 percentage points year-on-year to 70%. The company had maintained relatively stable per-share dividends since 2021, even slightly increasing them during the earnings fluctuations of 2024 to 2025, making the dividend cut in the first half of 2026 a negative surprise. Management has also revised its 2026 earnings target downwards to approximately RMB 1.2 billion from the previously guided RMB 1.5 billion.

Citi has reduced its earnings forecasts for BJ ENT WATER for the 2026-2028 period by 24% to 25%, reflecting lower revenue and increased impairments. The target price, derived from a discounted cash flow model, has been slashed by 44.3% to HK$1.7 from HK$3.05. In the first half of the year, BJ ENT WATER reported a 23.3% year-on-year decline in net profit to RMB 688 million, and a 5.6% drop in revenue to RMB 9.871 billion, primarily due to reduced revenue from technical services and construction. The gross margin fell 0.3 percentage points year-on-year to 39.7%, while impairment losses and disposal losses also increased.