It has taken many months, but Hyflux finally has some good news from its business development efforts in China. On April 4, the company said it has signed two memoranda of understanding (MOUs) to explore collaborations with two prefectural governments in Yunnan province. Among the projects covered in the MOUs are the high-tech water recycling and wastewater treatment plants in the cities of Chuxiong and Qujing. The total investment value is estimated to be about RMB 2 billion ($400 million) and RMB 1.2 billion respectively.
“This is a welcome pickup in order momentum for Hyflux in China,” notes Citigroup analysts Patrick Yau and Goh Aik Joon. “Since 2009, Hyflux has recorded a decline in revenue from China. Last year, Hyflux in China had only an $88 million organic expansion project that raised the capacity of six (Galaxy Spring) wastewater treatment plants by 100,000 cubic metres.” Should Hyflux secure the Chinese projects, worth about US$516 million ($640 million), it could offer a 22% boost to its overall orderbook of $2.9 billion, Citigroup adds. Hyflux’s engineering, procurement and construction (EPC) orderbook currently stands at less than $1 billion, by the analysts’ estimates.
To be sure, Hyflux has had a bumpy couple of years following record earnings in FY2010. The company had, for a time, decided to focus its business development efforts away from China after establishing a presence there, as it sought out much bigger and more lucrative desalination water projects in the dry deserts of the Middle East and North Africa region. Of course, the ‘Arab Spring’ uprising put paid to those plans, and while Hyflux already had its water plants in Algeria, it had to give up hope of securing an even bigger and better project in Libya.
Consequently, the company largely flew under investors’ radar for much of 2012, only announcing the $420 million Dahej desalination project in India and the $1.05 billion desalination plant in Tuas, Singapore. This was in stark contrast to the heady days a few years earlier when a flurry of contract announcements made sure Hyflux and its founder Olivia Lum were in the spotlight, and the company was worth some $2 billion in market capitalisation.
Today, Hyflux is trading at about half of what it was in the early part of 2008. But it has a strong portfolio of multi-region projects under its belt, and has an edge in its own high-tech water treatment services. Indeed, analysts speculate that the Yunnan projects, if secured, would likely be undertaken by Hyflux’s Chinese partners using Hyflux’s proprietary technology.
And, fortunately, industry observers say the water sector is looking up again. “The outlook has also improved in parts of the Middle East as desalination projects are coming back to the market, with Hyflux sharing that there are now more project tenders as conditions normalise, albeit within a more competitive environment,” Citigroup says.
This means Hyflux runs the risk of failing to secure new water projects, amid keener competition not least from the rash of Chinese water companies in the market. Citigroup also cites risks from project execution problems, as well as a shortage of buyers to off-take its projects available for divestment.
The Yunnan MOUs are not expected to have any tangible financial impact at least for this year and for now, it seems both investors and analysts are undecided about Hyflux’s prospects. Its stock did not move after the announcement, closing on Apr 5 at $1.415, and apart from Citigroup’s ‘buy’ and Credit Suisse’s ‘outperform’ recommendations, the other houses are advocating holds on the stock.
Nevertheless, Citigroup expects Hyflux’s stock valuations to rerate as its orderbook momentum recovers. The bank has a target price of $1.62
It has taken many months, but Hyflux finally has some good news from its business development efforts in China. On April 4, the company said it has signed two memoranda of understanding (MOUs) to explore collaborations with two prefectural governments in Yunnan province. Among the projects covered in the MOUs are the high-tech water recycling and wastewater treatment plants in the cities of Chuxiong and Qujing. The total investment value is estimated to be about RMB 2 billion ($400 million) and RMB 1.2 billion respectively.
“This is a welcome pickup in order momentum for Hyflux in China,” notes Citigroup analysts Patrick Yau and Goh Aik Joon. “Since 2009, Hyflux has recorded a decline in revenue from China. Last year, Hyflux in China had only an $88 million organic expansion project that raised the capacity of six (Galaxy Spring) wastewater treatment plants by 100,000 cubic metres.” Should Hyflux secure the Chinese projects, worth about US$516 million ($640 million), it could offer a 22% boost to its overall orderbook of $2.9 billion, Citigroup adds. Hyflux’s engineering, procurement and construction (EPC) orderbook currently stands at less than $1 billion, by the analysts’ estimates.
To be sure, Hyflux has had a bumpy couple of years following record earnings in FY2010. The company had, for a time, decided to focus its business development efforts away from China after establishing a presence there, as it sought out much bigger and more lucrative desalination water projects in the dry deserts of the Middle East and North Africa region. Of course, the ‘Arab Spring’ uprising put paid to those plans, and while Hyflux already had its water plants in Algeria, it had to give up hope of securing an even bigger and better project in Libya.
Consequently, the company largely flew under investors’ radar for much of 2012, only announcing the $420 million Dahej desalination project in India and the $1.05 billion desalination plant in Tuas, Singapore. This was in stark contrast to the heady days a few years earlier when a flurry of contract announcements made sure Hyflux and its founder Olivia Lum were in the spotlight, and the company was worth some $2 billion in market capitalisation.
Today, Hyflux is trading at about half of what it was in the early part of 2008. But it has a strong portfolio of multi-region projects under its belt, and has an edge in its own high-tech water treatment services. Indeed, analysts speculate that the Yunnan projects, if secured, would likely be undertaken by Hyflux’s Chinese partners using Hyflux’s proprietary technology.
And, fortunately, industry observers say the water sector is looking up again. “The outlook has also improved in parts of the Middle East as desalination projects are coming back to the market, with Hyflux sharing that there are now more project tenders as conditions normalise, albeit within a more competitive environment,” Citigroup says.
This means Hyflux runs the risk of failing to secure new water projects, amid keener competition not least from the rash of Chinese water companies in the market. Citigroup also cites risks from project execution problems, as well as a shortage of buyers to off-take its projects available for divestment.
The Yunnan MOUs are not expected to have any tangible financial impact at least for this year and for now, it seems both investors and analysts are undecided about Hyflux’s prospects. Its stock did not move after the announcement, closing on Apr 5 at $1.415, and apart from Citigroup’s ‘buy’ and Credit Suisse’s ‘outperform’ recommendations, the other houses are advocating holds on the stock.
Nevertheless, Citigroup expects Hyflux’s stock valuations to rerate as its orderbook momentum recovers. The bank has a target price of $1.62
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