To spin off its direct drinking water business

■ China Water Affairs announced that it plans to spin off the city direct drinking water and water supply operations and construction business on HKEX.
■ We expect the pipeline direct drinking water operations to be one of the growth drivers for China Water Affairs
■ Despite its share price outperformance, China Water Affairs is trading at 6.9x FY22F P/E and 6.1x FY23F P/E, so with a yield of 4.1%, its valuation still looks attractive. We maintain our ADD rating, with a target price of HK$11.12, based on 9x FY22F P/E, which is in line with its historical average.