Event:
We attended the fourth Singapore International Water Week convention, an annual conference which highlights the growing need for sustainable water solutions around the world. We came away convinced that this growing industry would imply continued opportunities for a progressive water company like Hyflux.
Our View:
In a technical sharing session, Hyflux again showcased its proprietary ultra‐filtration membrane, Kristal, which has been gaining a lot of traction in the past few years both in terms of market share and industry recognition. It is the top seller in the world and currently used in about 40% of water desalination (reverse osmosis) capacity globally.
Hyflux’s R&D expenses have been about 5% of annual sales historically. Even in the midst of this success, the company is researching new technologies and applications and remains open to new studies and ideas. Other than lowering the risk of becoming obsolete in an environment of fast‐changing technologies, this is also the company’s strategy against lower‐cost producers.
The $890m SingSpring Desalination Plant in Tuas, which held its groundbreaking ceremony last week, has added significant orderbook visibility. Furthermore, funding worries have been eased with a $150m project financing facility secured and the recent $400m preference share issue. Hyflux has again demonstrated its ability to win contracts in globally diverse places and India could soon emerge as a market as big as China.
Action & Recommendation
We expect the Tuas SingSpring plant to start contributing this year and have raised our FY11F/12F estimates by 6‐10%. Accordingly, our SOTP‐based target price rises from $2.25 to $2.37. In our opinion, Hyflux is the most credible and progressive water company in Asia, which makes it our preferred proxy to play the water theme. Maintain BUY. Major contract wins in new markets are a potential catalyst.
No comments:
Post a Comment