Citigroup has issued a research report adjusting its forecasts for BJ ENT WATER (00371). While lowering its net profit projections for 2026 and 2027 by 9% to 11% due to reduced construction and technical service revenue, the bank raised the target price from HK$2.85 to HK$3.05. This new target corresponds to a projected 2026 price-to-earnings ratio of 17.9 times, a price-to-book ratio of 1 times, and a dividend yield of 5.6%. The "Buy" rating is maintained.

The report highlighted that the company's dividend per share for 2025 increased by 3.1% year-on-year to HK$0.166, with a payout ratio reaching 98%. The forecasted dividend yield for 2026 remains attractive at 6.1%. In 2025, BJ ENT WATER's net profit fell 6.9% year-on-year to RMB 1.562 billion, primarily affected by a decline in non-cash construction revenue and impairment related to asset disposals. However, free cash flow surged 2.5 times year-on-year to RMB 5.2 billion, benefiting from proceeds from the disposal of non-core projects and reduced capital expenditure. The company plans to exit more loss-making projects. Management anticipates free cash flow will reach RMB 3 billion in 2026, with a capital expenditure budget not exceeding RMB 4 billion.

Revenue in 2025 decreased 9.1% year-on-year to RMB 22.062 billion. The proportion of non-cash construction revenue dropped from 14.2% to 7.4%. Operating income declined 1.9% year-on-year due to the disposal of certain consulting businesses. Benefiting from an increased proportion of sewage treatment business revenue, the gross profit margin expanded by 1.4 percentage points year-on-year to 38.5%. Management expects total revenue in 2026 to decrease by 7% year-on-year, with construction service and technical service revenues falling 38% and 35% respectively. Urban resource service revenue is projected to remain flat, while sewage treatment and water supply revenue are expected to decline by 3%.