STI : 3,202.10
Price Target : 12-Month S$ 1.23 (Prev S$ 1.24)
• Unusually strong 3Q13 bumped up by Tuaspring desal plant
• 4Q to slow down on lack of major project recognitions; financial close of Dahej is only in 1Q14
• Orderbook is depleting; future growth dependent on new projects; >US$2bn in bidding/enquiry pipeline
• Tweak FY13.14F by +2% each; maintain HOLD on limited visibility and upside to S$1.23 TP
3Q13 boosted by completion of Tuaspring desal plant. 3Q13 revenue and PATMI of S$188m (+21% y-o-y) and S$25m (+74%) were exceptionally strong, lifted mainly by the final completion of Tuaspring desal plant. Excluding one-off charges, core profits would be even higher at S$37.8m. Net margin improved to 13.5% from 9.4% in 3Q12 and 12.8% in 2Q13 due to overall cost management and lower material and staff costs as Tuaspring was nearing completion. As a result of Tuaspring, Asia-ex China formed 93% of 3Q sales, while MENA and China’s contribution continued to shrink to 3% and 4%, respectively.
Net gearing rose to 1.06x, after taking into account S$720m of project financing for Tuaspring. We do not expect the debt level to decline any time soon unless in the event of divestment. Meanwhile, management has sought to mitigate Hyflux’s exposure to a potential rise in interest rates with various interest rate swap and options.
EPC orderbook reduced to S$604m. Tuaspring power plant (S$300m) and Dahej (S$520m) are the only key projects within Hyflux’s current backlog. However, management shared that current bidding and enquiry pipeline is at its peak with more than US$2bn worth of projects and close to 2.5m ton/day processing capacity spread over Oman, Saudi Arabia, Nigeria, Kuwait and India. Hyflux is ready to seize opportunities in 2014 as it continues to develop and prepare for project bidding in the final quarter of 2013.
Asset-light strategy remains. There are plans to divest Magtaa eventually but only when a good opportunity arises. Hyflux has no intention to divest Tuaspring yet as it is deemed to be valuable.
Maintain Hold, TP: S$1.23. We tweaked FY13/14F by 2% each. Expect contract wins to be next major catalyst.
Publish date: 08/11/13