Brokers' Take
May 17, 2007
The Business Times
Hyflux
May 16 close: $2.59
UBS INVESTMENT RESEARCH, May 15
Q1 NET profit of $1.24 million: Hyflux has reported net profit of $1.2 million compared to $9.6 million a year ago. The big decline is due to the company having raised its stake in SinoSpring from 50 per cent to 80 per cent, which means that it cannot recognise the EPC revenue.
Momentum in projects, but earnings lag: While it continues to win new contracts and ventures into newer areas like recycling used oil, earnings in the last few quarters have been lacklustre. This is due partly to timing issues and partly to accounting treatment. While we expect the projects to eventually impact the bottom line, we believe the lack of transparency continues to hold back the share price.
Expect stronger earnings later in the year and 2008: We think that for the stock to perform significantly, it has to show some strong earnings on a sustainable basis. We think this may not happen in the next two quarters, and thus we maintain our 'neutral' recommendation with a price target of $2.60.
Valuation: Our price target of $2.60 is derived from discounted cashflow method, using a WACC of 9 per cent and terminal growth rate of 4 per cent. The stock trades at 36.4 times 2007E earnings and 15.6 times 2008E.
NEUTRAL
Compiled by UMA SHANKARI
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