Tuesday, April 16, 2013

Hyflux: China back on radar screen (OCBC)


Hyflux:
Fair value S$1.44
add: 12m dividend forecast S$0.03
versus: Current price S$1.43

China back on radar screen
• RMB1.2b & RMB2b projects
• Healthy S$2.9b order book
• Re-rating possible on actual contracts

Hyflux recently announced that its subsidiary – Hyflux Investment Consultancy and Management Service (Tianjin) Co – has signed two memoranda of understanding (MOUs) with the prefectural governments of Chuxiong and Qujing in Yunnan province to develop water and environmental projects in these two cities.
Management estimates the project in Chuxiong to be less than RMB2b and Qujing to be ~RMB1.2b. While it is still early days yet, we view the MOUs as a positive development as it suggests that China is back on the radar screen. For now, we will maintain our HOLD rating and S$1.44 fair value on the stock; but we do see room for re-rating should these MOUs translate into actual contracts. (Carey Wong)

Signs two MOUs in China
Hyflux recently announced that its subsidiary – Hyflux Investment Consultancy and Management Service (Tianjin) Co – has signed two memoranda of understanding (MOUs) with the prefectural governments of Chuxiong and Qujing in Yunnan province to develop water and environmental projects in these two cities. The MOUs cover projects like the development of water recycling, wastewater treatment plants and potable water treatment plants using Hyflux’s advanced Kristal® ultrafiltration membrane technology.

Going take time but positive development
While it is still early days yet, we view the MOUs as a positive development as it suggests that China is back on the radar screen. And these projects are certainly not small - management estimates the total investment value for the project in Qujing to be around RMB1.2b and Chuxiong to be less than RMB2b, where these could be developed by Hyflux and/or its potential partners. And we remain hopeful that Hyflux can use the opportunity to expand its presence in Yunnan province. While Yunnan has an abundance of water, some studies suggest that nearly 70% of water samples across the province failed to meet water quality standards, with water pollution from human and animal fecal contamination remaining a key concern.

Order book still strong
Meanwhile, we note that the company’s current order book remains healthy at S$2.9b (as of end-2012). And this is expected to increase with the recent signing of the water purchase agreement (WPA) to deliver desalinated water to the Dahej Special Economic Zone in Gujarat, India. Management expects the WPA to have positive material financial impact if the financial close is concluded by end FY13.

Keeping HOLD with S$1.44 fair value
For now, we will maintain our HOLD rating and S$1.44 fair value on the stock; but we do see room for re-rating should these MOUs translate into actual contracts.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC Investment Research
Publish date: 10/04/13

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