Hyflux

Hyflux: to form 50/50 JV with Mitsui to develop water projects in China. Named Galaxy Newspring, the JV will seek to delist Hyflux Water Trust (HWT) and take over its 18 water plants by making an exit offer of $0.78/sh in cash (14% above last traded price). Galaxy will also acquire 4 plants directly from Hyflux for US$53m…

No cash exchange is expected on Hyflux’s part, with its proposed injected capital (estimated $144m) into Galaxy cancelled out by the cash to be recieved for its HWT shares and its 4 divested plants. With this new vehicle, Hyflux should be more aggressive in bidding for projects in China, given easier access to financing…

KE views this as a positive development which will give Hyflux a better platform to undertake more projects, gain contracts momentum, and ease the current lack of earnings growth visibility. KE maintains its estimates and HOLD call with $3.43 target, pending Hyflux’s upcoming 1H10 results.