Hyflux, Hankore and UEL

Water Plays (Hyflux, Hankore and UEL): With China’S GDP growth at a 3-year low, monetary easing is on the cards, which could be good news for co’s building water treatment plants in China where there is huge demand for water infrastructure and capex is high. So, a drop in interest rates would be most welcome to these co’s. In its 12th 5-year plan (2011 to 2015), China set aside Rmb 104b for wastewater treatment, some 28% above the amount budgeted for the previous 5 years. There is a total budget of Rmb 430b on wastewater treatment and water recycling facilities. The challenge for co’s in the sector is investment costs which could run as high as Rmb 500m or more per project for building water treatment facilities. So, lower interest rates can only lighten the heavy debt-financing burden of this business. This is especially significant for SGX-listed water co’s as equity financing is often a last resort, given the low mkt valuation accorded for S-chips.