The share price of Hong Kong-based Guangdong Investment Ltd (GDI) soared by 5.2 percent on Wednesday to HK$9.99 ($1.29) in anticipation of a huge profits lift for the company following a 20-percent rise in charges for the water it supplies to Hong Kong.

The development came after the SAR announced on Tuesday it has renewed its contract with GDI to supply water to the city for three years from 2015 for a total price of HK$13.4 billion - up from HK$11.2 billion under the previous three-year contract.

GDI's interest in the Dongshen Water Supply Project, which is located near Guangdong province's Dongjiang coastline and supplies 80 percent of Hong Kong's water, is approximately 95 percent.

The new agreement between Hong Kong and GDI has found favor with stocks analysts, with JP Morgan reiterating its "overweight" rating for GDI and raising the company's targeted share price to HK$10.

"Buy" ratings have also come from Citibank, Merrill Lynch and Goldman Sachs, which raised GDI's targeted share price to HK$10.50 - up 9.4 percent from Wednesday's closing price. "Under the new deal, the proposed 2015-2017 annual fixed revenue increases (6.4% to 6.7%), if approved, could result in increases in our 2015 and 2016 earnings per share estimates by 2 percent and 3 percent, respectively," Goldman Sachs said.

Fund managers are also bullish over the new water deal. "I believe the new water supply agreement contributed significantly to the surge in GDI's share price on Wednesday," said Kingston Lin, a research director at Fulbright Securities Ltd. "I hold a positive view on GDI's stock price, but I expect the price to rise steadily like other utility stocks. GDI shares are worth an investment at about HK$9.50 apiece," he added.

Francis Lun, managing director of Lyncean Holdings, said he expects GDI's earnings to increase sharply from next year when the new contract comes into effect. "I'm confident of GDI's longer term prospects," he said.

GDI said on Wednesday shareholders and investors should exercise caution in buying and selling the company's shares as the overall impact the new contract has on the group's earnings potential has yet to be ascertained.

celia@chinadailyhk.com

(HK Edition 10/23/2014 page9)