Brokers' Take

UNDERPERFORM - CLSA Asia Pacific Markets

Hyflux
May 31 close: $2.40
CLSA Asia Pacific Markets, May 26

HYFLUX has come from nowhere since its listing in 2001, to become Singapore's largest listed water-treatment company by market cap. Large-scale contract wins in Singapore and China have propelled the company into the global water treatment services arena.

Hyflux's key earnings drivers come with attendant risks. While industrial projects will dominate in the near term, their short-term nature reduces earnings visibility. Hyflux has been aggressively pursuing larger municipal contracts to grow its recurring income stream, but here it has so far delivered on one, and encountered delays on the others, while the consumer business venture remains unproven.

Our sum-of-parts valuation methodology places Hyflux's shares at $2.50. We have assumed a steady state growth rate for industrial contracts and assigned a generous 25 times PE given Hyflux's track record here, and adopted DCF methodology for the larger municipal projects.
UNDERPERFORM