The company provides the city with 95% of its fresh water supply and dominates its wastewater treatment market. In 2005, it supplied 1.7 billion cubic meters of raw water and treated around 600 million cubic meters of wastewater. These services accounted for 75% and 25%, respectively, of the company's total revenue.
It draws water from the upper reaches of the Yangtze and Huangpu rivers but has plans to build larger reservoirs to meet future demand in a city already experiencing water supply shortages.
Shanghai Raw Water's efforts in this regard, and its future profit earnings ability, will receive a boost when Phase III of the ongoing Yangtze River Water Diversion Project is implemented, which is expected to increase the company's water supply capacity by up to 13%.
The project will require substantial capital expenditure, but Shanghai Raw Water's relatively low leverage and stable cash flow provides it with the financial flexibility it needs to absorb the impact on its balance sheet.
The company has also diversified into real estate, merchandise trading and computers through its subsidiaries, which include Shanghai Raw Water Properties, Hainan Raw Water Properties and Shanghai Raw Water Industrial and Trading. However, as its core business remains in non-cyclical activities, it retains considerable protection from economic fluctuations.
With average daily turnover of nearly US$2.5 million, and market capitalization more than US$1.35 billion, the stock is both large and liquid. Combined with the near certainty that Shanghai will maintain its rapid population growth curve, particularly with the 2010 Expo looming on the horizon, Shanghai Raw Water's future looks increasingly fresh.
Shenzhen Yantian Port Holdings 000088.SZ
Shenzhen Yantian Port Holdings has a finger in many pies, but the investment company's flagship holding, a 58% stake in Yantian Western Container Terminals in Shenzen Port, should guarantee the firm's future.
The port at Shenzen ranked fourth in the world and second in mainland China in terms of container throughput in 2005, half of which was handled in Yantian Port.
The company's controlling shareholder is state-owned Shenzen Yantian Port Group, on which it is highly dependent for its future success. In particular, the company's growth potential relies on accuiring a 35% stake in Yantian Port Phase III from its parent company. However, much like in 2000, when an asset swap gave Yantian Port Holdings a 27% stake in Yantian Port Phase I and II, this support seems certain.
The cyclical nature of the container shipping industry and intense competition among container ports in the Pearl River Delta also poses some risk. To combat this, the company diversified its business risks and enhanced its credit profile by branching out into cement, expressway and tunnel operation, and warehousing. By the end of 2005, Shenzen Yantian Port Holdings had 11 major subsidiaries.
A 50% stake in Shenzhen Wutong Mountain Tunnel Company, which operates a tunnel linking the eastern port area to downtown Shenzhen, is probably the most significant of these. Although a competing tunnel, Shenyan Second Tunnel, is on the horizon, its completion is still some time away.
Regardless, continued export growth, not to mention an increasing stream of imports driven by rising domestic consumption, will leave room for more than one tunnel operator in the region.
With Yantian Port recording 21% growth in cargo traffic in 2005 as a result of the Pearl River Delta's buoyant economy and a 28% surge in China's exports over the year, Shenzhen Yantian Port Holdings will handle the future with ease.