The Straits Times / The Business Times News on Hyflux

One-time gains boost Hyflux's H1 earnings

Net profit attributable to shareholders jump 164% to $23m

THE good news continues to flow in for Hyflux as the water-treatment company's efforts in the Middle East kick in.

Hyflux yesterday posted a 44 per cent surge in first-half revenue to $43.1 million. Net profit attributable to shareholders came to $23 million - 164 per cent up from the previous corresponding period's $8.7 million.

Including profit attributable to minority interest - which rose to $8.8 million from $1 million - net profit was $31.8 million, up from $9.7 million in the previous H1. The surge in earnings, however, was due largely to a one-time gain of $8.5 million from selling Hyflux Building and a 'fair value' gain of $8.7 million from the application of FRS 39 - an accounting standard adopted this year for financial instruments such as currency and interest rates swaps and commodities hedging.

At the operational level, first-half profit rose 54 per cent to $15.8 million, while for the second quarter, profit from operations grew 11 per cent to $6.6 million.

The Middle East has replaced China as Hyflux's biggest market. The region now makes up 49 per cent of total revenue compared with China's 46 per cent - a drop from the 76 per cent contribution last year.

Hyflux formed a joint-venture firm with Dubai-based investment company Istithmar last year to undertake water and waste-water projects, estimated to be worth over US$400 million in the Middle East in the next three years.

Contracts from this area are already coming in. In a separate announcement yesterday, Hyflux said the joint venture has been awarded a letter of acceptance to expand the scope of its Middle East project.

The engineering, construction and procurement of the project is expected to increase from about US$40 million to US$81 million, which will weigh positively on Hyflux's FY2005 results.

Meanwhile, Hyflux's current order book stands at $336 million compared with $237 million as of February this year, with municipal projects making up 81 per cent of total orders.

There are still potential orders of US$290 million, out of US$400 million, from the Middle East, $150 million from a Tianjin desalination plant and two agreements from China's Harbin and Changchun.

Hyflux's CEO and president, Olivia Lum, said margins from municipal projects are at 10-15 per cent, lower than the 20-30 per cent from industrial ones.

But she told BT there is longer-term potential from the municipal sector as the projects are bigger and because operating and maintenance revenue can continue for 20 years. She cautioned that bigger projects means shareholders should expect some lumpiness in performance as revenues are recognised by milestones. Ms Lum said: 'We are confident that this move of unlocking the hidden value of our assets will help to lighten our balance sheet and free up resources for further scaling up of business.'

The company's asset-light strategy includes the sale and leaseback of Hyflux Building as well as the proposed divestment of half of its first desalination project, called SingSpring, to Temasek Holdings, expected to be completed in the third quarter.

Shares of Hyflux have risen 86 per cent this year. The stock closed 2 cents higher yesterday at $3.68.