Hyflux Ltd: Secures S$43.8m Jurong Island Job

By Carey Wong
Wed, 10 Mar 2010, 10:52:53 SGT

Hyflux Ltd has just been awarded a S$43.8m contract by Tuas Power unit TP Utilities (TPU) to undertake the engineering, procurement and construction (EPC) works for stage one of the Tembusu Seawater Desalination Plant on Jurong Island. Management notes that the project is another “springboard” for Hyflux to participate in the increasing demand for large-scale desalination from customers in power, petrochemicals and basic resources worldwide. We are also positive on the latest contract win; not only will it add to the company’s already sizable S$1848m order book (as at 31 Dec 09), but it also marks a potential revival of orders from the industrial segment. Latest deal bumps up the EPC order book portion to S$828m, with the bulk expected to be delivered over the next two years. Given the still upbeat outlook for the global water industry, especially in China, we maintain our BUY rating with S$4.19 fair value.

Secures S$43.8m Jurong Island Job. Hyflux Ltd has just been awarded a S$43.8m contract by Tuas Power unit TP Utilities (TPU) to undertake the engineering, procurement and construction (EPC) works for stage one of the Tembusu Seawater Desalination Plant on Jurong Island. To be developed in stages, the desalination plant will have a designed capacity to produce some 182k m3 of high-grade industrial water per day to be supplied to petrochemical factories located in the Tembusu area of Jurong Island. Hyflux will start work immediately and should complete the project in ~20 months; however, the company does not expect the contract to have a material impact on its NTA or EPS for FY10.

Increasing demand for industrial desalination. Nevertheless, management notes that the project is another “springboard” for Hyflux to participate in the increasing demand for large-scale desalination from customers in power, petrochemicals and basic resources worldwide. We are also positive on the latest contract win; not only will it add to the company’s already sizable S$1848m order book (as at 31 Dec 09), but it also marks a potential revival of orders from the industrial segment. In addition, we believe that the latest contract will add to Hyflux’s reputation as a leading membrane-based desalination expert; the company is already constructing the world’s largest desalination plant in Magtaa, Algeria and it is also in talks with Libya to build two mega desalination projects (we estimate to be worth S$1b to S$1.5b).

Outlook for water sector still upbeat. Besides the Middle East and North Africa (MENA) region, we believe that the waste-water treatment demand will continue to increase in Asia, with China expected to present the lion share of opportunities. A recent industry report from Research and Markets estimates that China will generate some 79b tons of municipal and industrial wastewater in 2015, up 38% from the 57.2b in 2008, but it notes that the current wastewater treatment infrastructure is still inadequate to handle the expected increase. It further adds that the key emerging Tier 2 city markets such as Tianjian, Dalian, Hangzhou, Wuxi, Shenzhen, Xiamen, Chongqing and Wuhan offer the best prospects. Fortunately, Hyflux is no stranger to BOT projects in China and we believe its good track record would be a solid endorsement of its capabilities.

Maintain BUY with S$4.19 fair value. Latest deal bumps up EPC order book to S$828m, with the bulk expected to be delivered over the next two years. Maintain BUY with S$4.19 fair value.

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