Hyflux

Hyflux (S$0.90): 4Q14 losses ballooned 661% y/y to $53.1m, the result of 40% lower revenue, lower gross profit margin, higher operating expenses and impairment charges.

4Q revenue stood at $51.4m, bringing FY14 revenue to $321.4m (-40%). Trend is worrisome as the largest decline came from its core business Municipal water projects (84% of revenue, -47.0% y/y, $269.9m) in its home market Singapore (-47.8% to $232.5m).

Furthermore, new projects are few and order book risks declining. At Dec ’14, total order book stood at ~$2.9b, of which $954m are from EPC projects and the rest from O&M projects. Management is cautiously optimistic of a potential rebound in contract awards in later half of 2015, while seeking opportunities in Middle East and Africa, India and Singapore now.

Other income was substantially higher (+959.2%, $25.1m) on gains achieved by reversal of taxes previously accrued on the sale and leaseback of HIC building, but was completely offset by impairment charge ($26m) relating to water treatment assets in China.

Expenses increased significantly by 32.3% y/y to $34.6m, primarily attributed to higher utility charges from its newly completed Tuaspring Desalination Plant.

Management guides divestments opportunities as interests for certain China assets are significant.

Meanwhile, gearing is comfortable at 0.51x, way better 1.18x at Dec ’13 due to the new perpetual capital securities which are equity-like.

The company maintains final dividend at 1.6¢, bringing FY14 to 2.3¢, unchanged form last year. Trading at 53.9x P.E and 1.6x P/BV, Hyflux looks fairly valued.


The street as 4 Holds and 1 Sell, with consensus TP of $0.91