The Straits Times / The Business Times News on Hyflux

Hyflux shares dive on project revamp

SHARES of water treatment specialist Hyflux Ltd crashed over 4 per cent yesterday, as the market reacted negatively to news that the company is restructuring two projects in the Middle East.

Hyflux shares fell to as low as $2.79 before finishing at $2.80, down 4.4 per cent or 13 cents. About 6.4 million shares were traded. The stock, once a market favourite, has now lost 1.8 per cent since the start of the year.

The company said over the weekend that it is restructuring its joint ventures with its Dubai partner, Istithmar. It would pare down its stake in Palm Water LLC to 5 per cent from 49 per cent, while completely divesting its 51 per cent stake in Hyflux Middle East LLC to Istithmar.

Istithmar will pay Hyflux its original capital contributions to the two joint ventures totalling about $11.1 million plus another $2.2 million. This will yield a return of about 20 per cent based on the original capital invested, a return comparable to the average equity return from projects undertaken by the company, Hyflux said.

Among other things, Hyflux group CEO Olivia Lum said the move 'continues to give us the opportunities to participate in Palm Water's projects through the supply of our process knowhow'.

Market players, however, viewed the development less positively, as the partnership with Istithmar was touted by Hyflux as a gateway to the promising Middle East market. When Hyflux formalised its relationship with Istithmar in late 2004, Ms Lum had said: 'We see this joint venture as an investment in a long-term relationship that would create streams in the desert.'

In a research note yesterday, UBS Investment Research said: 'We think this development will call into question Hyflux's strategy into mega projects. Istithmar group had planned for US$400 million of projects of which we estimate Hyflux has only started or worked on US$100 million.'

Hyflux chief financial officer Grace Goh told Reuters that the end of the joint venture will have a positive impact on Hyflux's business outlook in the Middle East. 'Now we will be able to tap a bigger region independently,' she said.

Sentiment on Hyflux has weakened in recent months. Last month, Hyflux shares were sold down after it announced its 2005 earnings. While it had posted a 77 per cent jump in net earnings to $46.3 million, analysts pointed the profit would have been down 3 per cent if not for exceptional gains.