Brokers' Take

Hyflux Limited
Nov 22 close: $2.73

JP MORGAN RESEARCH, Nov 21

WE are raising our 12-month target price to $3.81 from $3.30 to reflect the removal of the 20 per cent equity dilution that was built into our earlier assumptions and to factor in the sale of a 50 per cent stake in two BOT projects in China. We are also reducing our reported forecasts for FY05 and FY06 to reflect the adoption of the earned-through-use accounting concept.

We believe the current share price weakness presents a great opportunity for accumulation. Hyflux's competitive edge and solid track record along with its valuations remain intact. These will be clearer when the 'infrastructure trust' structure is in place. This should present value-unlocking opportunities while allowing Hyflux to recycle its capital more efficiently into higher yield EPC work, and provide required financing to build a longer project pipeline.

To achieve an effective trust structure, Hyflux's challenges include building up a sizeable portfolio of completed projects and seeking mezzanine financing at the construction stage to retain project control while not compromising on profitability. It has progressed on all fronts - building a pool of mezzanine investors, starting with Ramatex, and completing SingSpring three months ahead of schedule.
- OVERWEIGHT