Hyflux

Hyflux

Postby winston » Wed May 14, 2008 11:04 am

Hyflux (S$3.65) - 1QFY08 results - Margins worse than expected

Below expectations. 1Q08 core net profit of S$0.9m was an improvement over the restated S$4m loss for 1Q07, but was below market and our expectations. Reported net profit of S$5.7m (+395% yoy) accounts for 10% of our full-year forecast and 11-13% of consensus. The key variances were higher-than-expected raw material and consumable expenses (+664% yoy) against revenue growth of 412% yoy, resulting in lower-thanexpected gross margins. 1Q08 profit was also boosted by a S$5m forex gain. Stripping this and non-cash items out, core net profit would have been just S$0.9m, despite a fourfold
jump in revenue.

Sales surged four-fold yoy, boosted by:-
1) maiden contributions of S$49.8m from EPC works at the Tiemcen Algeria desalination plant, which accounted for 56% of group turnover in 1Q08;
2) a yoy doubling of industrial sales; and
3) a 136% yoy increase in contributions from municipal projects in China.

Gross margins contracted 26% pts yoy, from 49% in 1Q07 to 23% in 1Q08. While a breakdown was not provided, we suspect the unexpectedly high costs were to be blamed. We understand that higher construction costs were also incurred at a water project in China due to changes in design specifications, but management is confident that higher water tariffs from better-quality water post-completion should offset the higher upfront costs. Core pretax margin in FY07 was 16%, vs. just 1% in 1Q08.

While 1Q08 is not representative of the full year, we believe it would be challenging for FY08 margins to
match FY07’s. As such, we have pared down our pretax margin assumptions for EPC projects from 15-20% to 10-12%.

Tiemcen Algeria plant on track for completion by end-FY09. In 1Q08, Hyflux recognised 16% of the project value of S$304m. This came ahead of our expectation of 40% for FY08. As such, we have brought our revenue recognition forward by 10%, recognising 50% each in FY08-09.

FY08-10 EPS estimates reduced by 23-24%, to account for lower pretax margin assumptions for EPC projects and the 1Q08 weakness. Following our earnings downgrade, our DCF-derived target price (WACC 10%; LTG 2.5%) has been reduced from S$3.63 to S$3.36, implying 26x CY09 P/E. Hyflux is trading at a hefty 28x CY09 P/E, double that of global and SGX-listed peers. Downgrade to Underperform from Neutral given the lack of upside to our target price.
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Re: Hyflux

Postby kennynah » Sun May 18, 2008 5:21 pm

i am beginning to like this "sai chwee recycler"... it is gaining more international recognition as a leader in water treatment/recycling... hyflux is also tradable at US bourse(i think nyse) although the volume is low...

this is a long term play...

my only problem is my burning question on why it is not making a ton of money given its leadership position...problems with the key mgmt? under charging for services? what?

maybe it is not "pricing" its services correctly...

this week, it ended at usd2.69(high of 2.75), which is the highest in its history. however, the week's volume was <1milion...pittance. havent caught onto any sponsor's radar obviously.

i suppose, we need to be aware of FX effect on this counter...when and if should sgd weaken going forward, this may augur even better for hyflux (HYFXF)
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Re: Hyflux

Postby helios » Sun May 18, 2008 5:49 pm

yo,

u read theEdge magz this week pg. 24 on HWT ... i juz got it in letterbox
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Re: Hyflux

Postby kennynah » Sun May 18, 2008 5:52 pm

yo too...

no have edgemag...how about u scan and post here...:)

or condense what it said about saiflux...thanks


San San wrote:yo,

u read theEdge magz this week pg. 24 on HWT ... i juz got it in letterbox
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Re: Hyflux

Postby winston » Tue May 27, 2008 8:18 pm

Not vested.

Will Hyflux's Algeria deal prove to be Dubai redux?


By CHEW XIANG

MAY, 2005. Hyflux announces net profit for the quarter to March is up 219 per cent to $8.98 million. Revenue doubles year-on- year to $24.2 million; 72 per cent of sales come from the Middle East and the company expects hundreds of millions of dollars worth of projects from the region. Share price? Roughly $3.65.

Hyflux sold its stake in a joint venture to its Dubai partner in March 2006. Investors, who had hoped for millions of dollars worth of new projects, sold the stock down viciously.

May, 2008. Hyflux announces net profit is up five-fold to $5.7 million. Revenue, at $89.6 million, is five times the restated $17.5 million in the year-ago quarter. North Africa and the Middle East account for 56 per cent of sales and Hyflux has just secured a $630 million desalination contract in Magtaa, Algeria. Share price after the announcement? Roughly $3.65, and going on to hit $3.71 as of yesterday.

But investors probably still remember what happened after 2005. Within ten months, Hyflux was trading down at around $2.70 after it sold its stake in a Middle East joint venture to its Dubai partner, Istithmar, in March 2006. Hyflux said that it made a 20 per cent gain from the whole affair but investors, who had hoped for millions of dollars worth of new Middle East projects, sold the stock down viciously. One analyst said that only a quarter of the anticipated orders materialised.

Will Algeria be Dubai redux? At the current moment, with Hyflux on the rise, once-burnt investors have yet to turn shy again. Perhaps they should. The Magtaa plant has not yet contributed revenue to Hyflux, but there are some troubling omens.

According to Global Water Intelligence, an industry publication, Hyflux's bid for Magtaa included a remarkably low engineering, procurement and construction (EPC) cost - just US$441 million for a 28-month construction period. The closest rival bid was for US$457 million over 36 months.

And the desalinated water price, which provides recurring revenue for the company, was just 55.77 US cents per cubic metre - possibly the lowest tariff in the world, according to GWI.

The low EPC cost should be a worry, going by Hyflux's latest profit statement. According to its Q1 results, construction profit from an earlier 200,000 cubic metre per day desalination plant in Tlemcen, Algeria is coming below expectations.

CIMB's Jessie Lai calculated that Tlemcen contributed $49.8 million in sales but overall, gross margins contracted 26 percentage points year-on-year on higher construction costs.

Ms Lai noted that Hyflux's Q1 core earnings, after stripping out one-off items and a $5 million forex gain, was just $0.9 million, despite the surge in revenue.

In May 2005, DBS Vickers made much the same point about Hyflux - core earnings, after taking out a $5.5 million fair value gain, was just $3.5 million due to lower EPC profits. Nevertheless, some analysts remain bullish on the stock. JPMorgan, for example, is retaining an 'overweight' call, saying that it expects positive news flow from project wins in China and Algeria.

It's likely that Hyflux's pipeline of new deals isn't drying up any time soon. For the past year, it has been announcing 200 to 300 million yuan (S$39-59 million) worth of new orders every few months. That's going to add a lot to headline revenue numbers, even without considering the mammoth Magtaa contract. Hyflux says that it hopes to book EPC revenue from that deal of $600 million from 2009 to 2011.

But high sales don't necessarily translate into good earnings if costs shoot up. The Tlemcen precedent is worrying; CIMB's Ms Lai notes too that higher construction costs were incurred at an unnamed China water project due to changes in design specifications. Higher recurring income should help earnings, but as noted, Hyflux may have had to slice its tariff rates to the bone to secure new contracts.

And margins will also depend on cost of capital. Hyflux said that it secured 75 per cent of the funding for Magtaa at a 'very low' rate of 3.75 per cent. The remainder could be borrowed for Libor + 1.5 per cent, according to management.

Those rates are astonishingly low. Some say that this could be due to Hyflux's good relationship with the Algerian government. An Algerian Energy Company (AEC) source told GWI that 'we had instructions from the government' to award Hyflux the smaller Tlemcen deal (Magtaa was won in an open tender put out also by AEC). And the Algerian banking sector, which is providing the 3.75 per cent loan line, is dominated by state banks.

Investors will remember that Istithmar, Hyflux's old Dubai partner, is an investment holding company owned by the United Arab Emirates government. Algeria, embroiled just ten years ago in a bloody civil war, will hopefully prove to be different.
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Re: Hyflux

Postby winston » Mon Jun 30, 2008 3:09 pm

Not vested.

DBS Research is re-initiating coverage on Hyflux with a Buy recommendation and target price of S$3.53.

Hyflux specializes in the increasingly popular membrane technologies.

Geographically, it is also the most diversified SGX-listed water play with operations spanning Singapore, China and the Middle East and North African (MENA) region.

Hyflux is poised for promising growth and its S$1.6b of EPC orderbook presents excellent visibility till 2010.

Key risks will be project execution and delays
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Re: Hyflux

Postby helios » Mon Jun 30, 2008 8:46 pm

>>> was at e SIWW event, chatted w e guys @ e booth; i didn't know Hyflux got another entity Eflux for oil play ...

Eflux Singapore Pte Ltd has formed a Joint Venture, Eflux SK Pte Ltd with SK Oilchem Management Pte Ltd, to collect, recycle and treat waste oil in Singapore using Hyflux's proprietary technology.

This new partnership – Eflux SK signifies the birth of a new concept of environmentally friendly services in Singapore and Hyflux commitment to realise the value of its technology investment. This partnership has since attracted much regional market interest.

SK Oilchem is a very experienced used oil collector which specialises in the collection of used oil from industries such as shipyard and marine, motor workshops, navy bases and army camps.

Eflux SK has been licenced by Singapore's National Environment Agency (NEA) to collect and treat used oil, using the Hyflux Advanced Membrane System (HAMS). The process follows the strict guidelines from the NEA, who holds the code of practice to govern waste oil management.
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Re: Hyflux

Postby millionairemind » Sun Jul 06, 2008 2:42 pm

Hyflux
Price - $2.98 Target - $3.44

Hyflux, with Hyflux Water Trust (HWT), jointly announced the first portfolio of qualifying projects earmarked for potential injection into HWT. Although the timing of this announcement was earlier than expected, we understand the phased execution may be at end-08 or early-09, depending on the review process and shareholders’ approval. Valued at $180m, the 9 plants have a total designed capacity of 290k cu m/day. Of the lot, two brownfield projects were newly added and not from the pipeline list as of Nov-07. The majority of the projects will reach operational commencement in 2H08-1H09 and the acquisitions may be executed in tranches as HWT expects to acquire operational projects. Funding will be primarily by debt. Based on a sensitivity analysis of 1.2x P/B, we estimate a gain of $20m for Hyflux and a net earnings boost of at least 4-5% over next 2 years (assume partial execution in 2008). Maintain NEUTRAL. – Credit Suisse (1 Jul)
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Water

Postby kennynah » Mon Jul 07, 2008 11:46 pm

i have this burning question.....since water treatment is such a big deal....

why is hyflux share price not even S$10/share?
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Re: Water

Postby iam802 » Mon Jul 07, 2008 11:49 pm

Good question, K.

I have been reading this thread and thinking about the calls that DBS make on the water companies.

But, I still could not figure out things..when I look at Hyflux chart. (Must dig through announcements ...to think deeper or maybe their filter very good...everything filter off already)

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