Dao Heng Securities rates Guangdong Investments a 'buy' citing strong sales turnover and a dramatic increase in profits in the third quarter. Interim profit for the three-month period rose 51 per cent on a 5 per cent rise in turnover. Most of the gain is attributable to its water distribution business, which recorded an increase in interim profit of 23 per cent to $180 million. Its investments in power generation, however, recorded a loss of $29 million for the period. Looking ahead, the broker says there are several positives to drive the share price. If talks to reduce interest charges on $11 billion of debt are successful, the company's earnings could rise 5 per cent next year. Second, the company may be awarded infrastructure projects from its parent by the end of this year. Third, the government may boost water tariffs to help conserve limited resources, a move that would boost the company's bottom line. The broker said compared to valuations of other red chips, the company's valuation of 11.4 times forward earnings for 2006 is undemanding and set a target price of $3.10. The share price closed at $2.575 on Friday.