Hyflux Ltd: Strong S$1848m order book

By Carey Wong
Fri, 26 Feb 2010, 10:35:59 SGT

Hyflux Ltd released its 4Q09 results last evening. Although revenue slipped 2.0% YoY to S$175.6m, it was up 38.8% QoQ. Thanks to better cost control, as well as the recognition of a S$12.1m financial gain from 50% injection of its Tianjin Dagang project into the JBC JV, net profit jumped 93.2% YoY and 42.9% QoQ to S$25.9m. Hyflux has also declared a final dividend of S$0.05 per share, versus S$0.0343 for FY08. Management remains confident of its prospects, backed by its strong order book of S$1848m, up nearly 25% over the year. Recently, Hyflux won a S$35.8m contract by PUB to design, construct, test and commission a membrane bioreactor (MBR) plant; while the contract is not expected to have a material impact on Hyflux’s EPS and NTA for 2010, management believes that the MBR market presents another great opportunity for future growth. Although we have kept our FY10 estimates unchanged, we have raised our valuation multiple from 22x to 25x to reflect the more upbeat outlook; this in turn increases our fair value from S$3.61 to S$4.19. Maintain BUY.

4Q09 results mostly in line. Hyflux Ltd released its 4Q09 results last evening. Although revenue slipped 2.0% YoY to S$175.6m, it was up 38.8% QoQ. Thanks to better cost control, as well as the recognition of a S$12.1m financial gain from 50% injection of its Tianjin Dagang project into the JBC JV, net profit jumped 93.2% YoY and 42.9% QoQ to S$25.9m. However, due to the still soft waste-water sector in China in 2009, full-year revenue slipped 5.3% to S$524.8m, though still slightly ahead of our S$516.2m forecast. While FY09 net profit jumped 27.1% to S$75.0m, it was below our S$83.5m forecast (also includes S$12.1m gain); but if we exclude other exceptional items, core net profit of S$83.8m would have been spot on. Hyflux has also declared a final dividend of S$0.05 per share, versus S$0.0343 for FY08.

FY10 outlook upbeat. Management remains confident of its prospects, backed by its strong order book of S$1848m, up nearly 25% over the year. And with the expected completion of its Tlemcen project by 1H10, its Operations & Maintenance (O&M) segment of S$1100m now dominates the order book (See Exhibit 2); this is expected to translate into stable income over the next 20-25 years. And with the completion of the Magtaa project, management adds that it will increase its O&M portion by another S$1b. As for its EPC segment, management reveals that its talks with Libya for two mega projects (that we earlier estimated could be worth around S$1.5b) are progressing well into the specification stage, although Hyflux notes that it may still take some time before reaching an agreement.

MBR may be new focus. Recently, Hyflux won a S$35.8m contract by PUB to design, construct, test and commission a membrane bioreactor (MBR) plant with a designed capacity of 68k m3 per day. The plant at the Jurong Water Reclamation Plant will be Singapore’s largest and is also the largest MBR plant to be built by Hyflux. While the contract is not expected to have a material impact on Hyflux’s EPS and NTA for 2010, management believes that the MBR market presents another great opportunity for future growth, given the sheer size of the waste-water treatment market.

BUY with new S$4.19 fair value. Although we have kept our FY10 estimates unchanged, we have raised our valuation multiple from 22x to 25x to reflect the more upbeat outlook; this in turn increases our fair value from S$3.61 to S$4.19. Maintain BUY.

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