Fair value S$1.23
add: 12m dividend forecast S$0.030
versus: Current price S$1.170
Slow 4Q after strong 3Q
In 3Q13, Hyflux saw revenue jumped 26% YoY to S$187.7m and net profit rose 74% to S$25.3m, such that 9M13 revenue of S$450.7m met 68% and earnings of S$51.0m met 75% of our FY13 forecasts, respectively. But with the completion of Tuaspring in 3Q, Hyflux believes that 4Q is likely to be slow. Nevertheless, management remains largely upbeat about its prospects, as it is working on tenders for various projects in MENA potentially worth S$2b. As we roll forward our 20x multiple from blended FY13/FY14 to FY14F EPS, our fair value inches up from S$1.215 to S$1.23. But we opt to keep our HOLD rating on the stock until we see better clarity on its project wins.
Strong 3Q13 results
Hyflux Ltd reported 3Q13 revenue jumping 26% YoY (36% QoQ) to S$187.7m, mainly due to the completion of projects in the quarter (likely Tuaspring which was commissioned on 18 Sep). Gross margin also improved significantly to 62%, versus 41.6% in 2Q13 and 41.8% in 3Q12, thus allowing net profit to surge 74% YoY and 43% QoQ to S$25.3m. For 9M13, revenue eased 4% to S$450.7m, meeting 68% of our full-year forecast, while net profit rose 28% to S$51.0m, or 75% of our FY13 estimate.
But expects a slow 4Q
However, Hyflux warns that 4Q13 may not be as strong seasonally, given the completion of Tuaspring in 3Q13, and will be mostly working on the EPC portion of the co-generation power plant at Tuaspring. In addition, management notes that the financial close of its Dahej project in India is likely to be in 1Q14, along with the financing package. As such, we deem it prudent to reduce our FY13 revenue estimate by 5% and earnings by 6% (also to account for a higher depreciation expense).
Prospects for 2014 remain upbeat
Nevertheless, management remains largely upbeat about its prospects. For one, it will focus on tendering for various large projects in MENA in 4Q, and some would be in places like Saudi Arabia (1m m3/day capacity), Kuwait (500k m3/day) Oman (400k m3/day), Nigeria (300k m3/day), which could potentially be worth some S$2b in project value. It adds that it is actively pursuing desalination and water recycling opportunities in the industrial water space.
Maintain HOLD with higher S$1.23 fair value
While our fair value inches up from S$1.215 to S$1.23 as we roll forward our 20x multiple from blended FY13/FY14 to FY14F EPS, we opt to keep our HOLD rating on the stock until we see better clarity on its project wins.
Publish date: 08/11/13