Not quite the spice girl yet
S$1.30 - Tgt. S$1.35
▊ Results aside, HYF did well operationally by executing high-profile projects on time. We are not excited by the current project win-rate, but we like its slow and steady transformation into a utility play. HYF's results trailed our lofty expectations due to lack of new sizeable EPC projects, with 2Q13 and 1H13 net profit forming 25% and 35% of our full-year estimate, respectively. We cut our FY13-15 EPS by 4%-24% to reflect more achievable order-win assumptions. Our SOP- based target price is reduced to S$1.35. Our Neutral call is intact as HYF's project win-rate needs to accelerate prior to any share price re-rating.
Results a non-event
HYF's 2Q13 core net profit of S$17.7m (+1% yoy) reflects the lack of contributions from other geographies outside Asia ex-China. Municipal continued to be the main source of income – its share of the revenue was 86% in 2Q13. Its GP margin of 42% is reasonably strong on the back of project completions along with accompanying cost decreases. Looking at the aggregate of numbers from various associates and JVs, HYF booked losses of S$1.2m, which is better than last quarter's S$3m loss. We suspect that the bulk of the recurring earnings from O&M contributions are not fully in force at this stage. Interestingly, the proposed dividend of 0.7 Scts/share suggests that the group is on the path of becoming a utility play, but at a seemingly slower pace now.
Tuaspring ready in 3Q13
The Tuaspring Desalination plant is slated to open in Sep 13. Maybank will arrange non-recourse project financing for the plant, including its onsite power plant with its financial close expected in 3Q13.
The spice is still missing
HYF is in need of mega project wins that can act as immediate share price catalysts. Its net gearing is not over the top at 0.8x, but new projects could make this swell. That said, HYF has done well in the past in tapping the capital market for funding sound projects that it was keen to pursue. Its current valuation appears fair vis-à-vis its major Asian peers.
Publish date: 06/08/13