Brokers' Take

Hyflux, June 15 closing : $1.46

16 June 2004
The Business Times

G K Goh Research

HYFLUX plans to spend US$90 million on a seawater desalination plant in the Chinese city of Tianjin. When completed in 2006, the membrane-based plant, with a capacity of 100,000 cubic metres (m3) a day, will be one of the biggest in China, supplying industrial and city-grade water for an initial period of 30 years, with provision for a subsequent extension. There are plans to expand the plant's capacity to 150,000 m3 per day by 2008.

This is Hyflux's first municipal build-own-operate (BOO) project in China and the biggest contract the company has secured.

But it's difficult to quantify the likely impact, as vital details are pending until the end of next year.

There's a strong likelihood that equity partner(s) will be roped in to reduce Hyflux's capex outlay.
A possible model would be for partners to set up a joint venture company to take on the project and award the contract to Hyflux.

Based on this scenario, Hyflux could potentially triple its outstanding order book to some $180 million for recognition over the next two years.

Our FY05 forecast has already assumed contract wins. So this project is unlikely to have a major impact, but it will improve earnings visibility.

More BOO and build-operate-transfer (BOT) projects can be expected as Hyflux strives to build its recurrent income base.

The group is tendering for Singapore's biggest Newater project at Ulu Pandan. That tender will close in the third week of July, bids will likely be unveiled a few weeks later and the contract will be awarded possibly in September/October.

Besides Singapore and China, Hyflux is also reviewing BOO/BOT opportunities in other Asian markets.

Compiled by VEN SREENIVASAN