Monday, November 11, 2013

Hyflux : earnings uncertainty ahead (CS)

Hyflux Ltd
Maintain NEUTRAL
Price (07 Nov 13 , S$) 1.17
TP (prev. TP S$) 1.30 (1.50)
Surge in 3Q13 profit on completion of Tuaspring plant; earnings uncertainty ahead

● Hyflux reported 9M13 net profit of S$51 mn, achieving 98% of consensus FY13 forecast as gross margin surged to 62% in 3Q13 from 42% in 2Q13 with the on-time completion of the Tuaspring desalination plant in Singapore.


● However, with the financial close for the Dahejspring plant in India only expected to be achieved in 1Q14 and EPC activities commencing thereafter, management expect profit in 4Q13 to be lower.

● While Hyflux is tendering for various large projects in the Middle East and Africa regions, including Saudi Arabia, Kuwait, Oman, Nigeria and Qatar, we expect these projects to be awarded in mid- 2014 at the earliest as time is required to evaluate proposals.

● We maintain our NEUTRAL rating and lower our target price to S$1.30 (from S$1.50), as we believe the next few quarters are likely to present significant orderbook uncertainty. While the stock is trading close to its trough P/B valuation, we would await greater earnings visibility before turning positive.

3Q13 results ahead of expectations
9M13 revenue of S$451 mn was 67% of consensus and 73% of our FY13 forecasts, while 9M13 net profit of S$51 mn was 98% of consensus and 94% of our FY13 forecasts. 3Q13 revenue increased to S$188 mn from S$155 mn in 2Q13 largely due to on-time completion of Tuaspring desalination plant in Singapore. This also led to a surge in gross margin to 62% in 3Q13 from 42% in 2Q13. The decline in raw materials and consumables used and subcontractors’ costs reflected cost management for the project. The higher gross profit was partially offset by an impairment charge of S$13 mn for liquidation of Hyflux Filtech Singapore and provisions against receivables of S$8 mn.

Tuaspring desalination plant completed in 3Q13
Following the completion of the Tuaspring desalination plant, Hyflux has secured a S$720 mn 18-year loan facility to fund the desalination and power plants. Project financing will be provided by Maybank Singapore and Maybank Kim Eng Securities Pte Ltd. Financial close is subject to condition precedents customary to such deals, including PUB’s consent. Hyflux’s net gearing as of 30 Sep 2013 was 1.06x vs 0.8x as of 30 June 2013. However, the on-site 411MW CCGT power plant is still pending connection to the grid, with management noting that they are working with the authorities on the issue.

Orderbook uncertain despite numerous tenders
Management expect financial close for Dahejspring plant to be achieved in 1Q14, with EPC activities expected to commence thereafter. With the completion of Tuaspring desalination plant in 3Q13 and before the startup of Dahejspring plant in 2014, management expect profit in 4Q13 to be lower. To replenish its orderbook, Hyflux is actively pursuing desalination and water recycling projects in the industrial water sector which have shorter project timeframe. At the same time, it is also tendering for various large projects in the Middle East and Africa regions. In particular, the company is looking at projects in Saudi Arabia (1,000,000m3/day), Kuwait (500,000m3/day), Oman (400,000m3/day), Nigeria (300,000m3/day), Qatar (200,000m3/day) and Chennai, India (150,000m3/day) with a potential total project value of S$2-3 bn. However, we expect these projects to be awarded in mid-2014 at the earliest as time is required to submit and evaluate proposals.

Maintain NEUTRAL
We lower our 2014 net profit (before preference shares) from S$63 mn to S$45 mn due to orderbook uncertainty following the completion of the Tuaspring plant. As a result, our target price falls to S$1.30 (from S$1.50). While the stock is trading close to its trough P/B valuation, we would await greater earnings visibility before turning positive.




Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 08/11/13

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