Brokers' Take

Hyflux Ltd, Jan 13 close : $2.91

14 January 2005
The Business Times

BNP Paribas Peregrine

LOOKING at more orders in China and the region: After securing two China deals - one in Tianjin and the other in Liaoning, Hyflux is collaborating with the China National Environmental Protection Corp on four more projects: seawater desalination, wastewater treatment, recycling and municipal water treatment. Besides China, Hyflux is also considering possibilities in the Middle East, India, and Thailand. These projects could be awarded over the next 12 months.

Hyflux is looking at participating in these projects as an EPC (engineering, procurement and construction) contractor and/or O&M (operation and maintenance) contractor.

Water shortage situation aggravated by tsunami: Hyflux was in talks on projects in Thailand and India as these areas were already facing water shortages prior to the crisis. The impact of the tsunami has amplified the need for affordable water purification and recycling systems. We believe that the recent disaster will hasten the completion of these projects and perhaps even spur more orders.

Securitisation delayed: Hyflux's securitisation strategy will enable it to scale up, lighten its balance sheet, enjoy a recurrent earnings stream, and recognise engineering income and capital gains from projects simultaneously. As we had earlier expected completion in 4Q04, we are adjusting our estimates to reflect securitisation to be completed in 2005 instead of 2004.

Sensitivity analysis suggests significant upside: Our medium case scenario analysis suggests EPS (earnings per share) could jump to $0.18 for 2005. A price target of 20x 2005 P/E translates into $3.63, suggesting more upside - and this does not factor in new orders and capital gains. Reiterate outperform' recommendation. - OUTPERFORM

Compiled by JOYCE KOH