Hyflux

Hyflux: Annouced weak 3Q11 results, which was below estimates. Rev at $87.7m, -36% yoy and -21% qoq, while net profit at $12.6m, -34% yoy and -13% qoq. Gross Margins also dipped at 43.9% vs 49.6% yoy.

A one-off gain on sale of obsolete equipment ($13.2m) and forex gains ($5.1m) prevented a loss. Overall 9M11 profit declined 36% to $34m against a full-year consensus of $80m. This was attributed to lumpy rev recognition, but analysts foresee more structural issues here.

Execution on China BOT projects continue to be slow, despite an estimated orderbook of $330m, only $93m were recognized ytd. This is despite some projects having been won as far back as 2008. Which could possibly attributed to mgt holding back some of these projects, which may be fundamentally unattractive. With a 25-30 year investment horizon, it is also an issue of whether Hyflux is able to divest these projects.

With the cessation of Middle-East projects for now, this may be the end of a run of attractive projects for Hyflux. Outside SG, mgt is now focusing on China, India and Australia, but the latter two are still potential new markets which has not seen any concrete contracts from. At current price, valuation appears fair, with grp trading at an annualized 17X FY11E P/E vs historical forward average of 20.2x, given limited upside catalyst. Ratings are as per follow:

- Citi maintains Buy with $2.74 TP.
- DBSV maintains Buy with $ 1.78 TP
- Kim Eng downgrades to Sell with $1.15 TP.
- CS d/g to Neutral, TP $1.40 from $2.60, weak 3Q11 results n rising headwinds
- JP Morgan maintains Neutral, TP $1.60 from $1.70, trim earnings estimate for FY11E by 20%
to further account for lower earnings contribution from the Tuas desalination plant,
- Nomura maintains Neutral, TP $2.33, weak 3Q due to project cycle. Trading at $1.40, implying 8x FY12F P/E vs. peers' 8x-17x FY12F. Fair valuation on the back of disappointing 3Q11 results and sluggish new orders observed during the period.