New wins needed
Hyflux's management does not lack ambition. Its 3Q13 results outperformance reflects its lower-cost regime that is commensurate with project completions. Unfortunately, we expect massive earnings slowdown in 4Q13 from start-up project.
HYF's 9M13 core net profit beat expectations, forming 114% of our FY13 estimate. We raise EPS by 20% in FY13 but lower by 6-12% in FY14-15 to reflect our new cost and achievable order-win assumptions. Our SOP-based target price is reduced to S$1.18. Our Neutral call is intact as a higher project win rate is needed for HYF's share price to re-rate.
Great results but lacking order book replenishment
HYF's 3Q13 core net profit (+154% yoy) beat our and consensus forecasts. Municipal sources continued to be the main income contributor, with 89% of total revenue YTD. Similar to 2Q13, HYF's 3Q13 gross margin of 62% was reasonably strong due to project completions and the accompanying cost decreases. Depreciation impairment also shot up as a result of impairments and write-downs for the carrying value of non-core assets. We suspect that HYF's current order book should be c.S$2.54bn (reflecting the S$188m in recognitions).
HYF's net gearing swelled to 1.1x at end-3Q13. However, that includes project financing for Tuaspring. We believe that HYF has the ability to tap into the capital market for funding to pursue sound projects.
Lack of conviction now
We think that the recurring earnings from operations and maintenance have not reached their full potential at this stage. That said, management is highly focused on tendering for various large projects in the Middle East and Africa. We firmly believe that winning just one mega project will act as an immediate re-rating catalyst for HYF's share price. HYF's current valuation appears fair compared to its major Asian peers.
Source/Extract/Excerpts/来源/转贴/摘录: CIMB Research
Publish date: 08/11/13